The US service sector expanded at an accelerated pace in August! ISM services PMI rose to 55.4, and the price index hit a four-year high

The Zhitong Finance App learned that the pace of expansion of the US service sector further accelerated in August. According to data released by the American Institute for Supply Management (ISM) on Thursday, the ISM service sector PMI rose to 55.4 in August, up from 54.1 in July, and has been in the expansion range for 26 consecutive months. Among them, indicators of commercial activity and new orders both rose to multi-year highs, indicating that demand in the US service sector is still strong. However, the employment index shrank for the second month in a row, while the price index rose to 72.6, the highest level since August 2022, highlighting the resilience of the US economy and the coexistence of inflationary pressure.

Service sector PMI rose to 55.4. Both business activity and new orders strengthened

According to the data, the US ISM service sector PMI recorded 55.4 in August, up 1.3 percentage points from July, and 1.7 percentage points higher than the average of 53.7 in the past 12 months.

It is worth noting that the growth momentum of the service sector has increased markedly. The business activity index rose sharply from 59.1 to 61.7, the highest level since November 2022, while the new orders index rose from 57.2 to 60.9, the highest level since February 2023.

The backlog of orders has also increased markedly. The order backlog index jumped 4.7 percentage points from 50.9 to 55.6 in August. It was in the expansion range for the seventh month in a row, and hit the highest level since February 2026.

External demand has also improved. The new export orders index rose from 52 to 56.3, and remained above 50 for the seventh month in a row; the import index rose from 51.8 to 56.3, expanding for the second month in a row.

The inventory index rose from 51.4 to 56.7, a sharp increase of 5.3 percentage points; the inventory sentiment index rose to 54.1, which has been in the expansion range for the 40th month in a row.

From an industry perspective, a total of 12 service industries achieved growth in August, and 5 industries experienced contraction. The fastest-growing industries include mining, real estate and rental, lodging and food services, wholesale trade, and arts, entertainment, and leisure; construction, finance and insurance, health care, and social assistance sectors have contracted.

ISM pointed out that summer seasonal demand clearly supported the service industry, and accommodation, catering, and arts, entertainment, and leisure all ranked among the five fastest-growing industries in August.

Inflationary pressure heats up again, and the price index hit a four-year high

What is more interesting than the acceleration in economic activity is price pressure. The ISM service industry price index rose further from 70.3 to 72.6 in August, the highest level since August 2022.

This is the fifth time in the past six months that it has broken through 70, and the indicator has been above 60 for 21 consecutive months. Its average for the past 12 months rose further to 68.5, the highest since April 2023.

The range of commodity price increases has also expanded markedly. In July, the companies surveyed reported a drop in the prices of 6 commodities, but in August, only one fuel product was reported to have dropped in price, and fuel was also listed as a price increase item by some companies for the seventh month in a row.

Petroleum-related products, diesel, and gasoline were once again included in the list of goods with rising prices in August. The impact of the Middle East conflict on energy prices has begun to spread to business operating costs. An education service said that the conflict in Iran and tight oil supply have caused its fuel procurement costs to rise.

Wholesale trading companies said that prices of bulk raw materials such as copper, aluminum, and polyvinyl chloride (PVC) are still rising on a weekly basis, while geopolitical factors such as tariffs continue to drive up prices. Meanwhile, graphics processing units (GPUs) and steel were listed as scarce commodities for the first time. Retail companies also said that the shortage of memory continues to worsen, and the inventory of devices requiring the use of memory cards is low, while prices remain high.

Employment has shrunk for the second month in a row, but stronger demand may push companies to re-recruit

In stark contrast to strong business activity, employment in the US service sector is still weak. The employment index for August was 47.8. Although it slightly rebounded 0.4 percentage points from 47.4 in July, it was still below the 50 boom and bust line, which meant that employment in the service sector contracted for the second month in a row. The indicator is also below the average of 48.8 over the past 12 months, and is below 50 in 13 of the last 18 months.

There are, however, some signs of potential improvement in the job market. According to ISM, the proportion of companies that cut the number of employees in August fell to 17.1% from 19% in July.

At the same time, the index of commercial activity and new orders both rose to multi-year highs, and the backlog of orders also increased markedly. Some companies even said that the increase in the backlog of orders was due to insufficient company staffing.

ISM believes that if demand continues its current strong momentum, service companies may need to increase recruitment in the future.

Tariffs and the Middle East conflict have once again become the biggest supply chain concern

ISM said that tariffs and the Middle East conflict once again became the most frequently mentioned supply chain issues by the companies surveyed in August.

Companies in the lodging and catering industry said that the overall business environment is still positive, but changes in US government policies, including tariffs and the Middle East conflict, are putting continuous investment pressure on companies and their suppliers.

Companies in the professional, scientific, and technological services industry said that the combination of US “Section 301” tariffs and new forced labor-related tariffs has kept the cost of imported goods landing high.

Some companies are reducing risk by finding second suppliers and evaluating nearshore production, but for some special materials and components, there are still limits to qualified production capacity, delivery times, and product quality.

As a result, companies need to maintain higher inventory buffers and longer procurement planning cycles, while profit margins are being squeezed, and the increased costs are only partially passed on to customers.

The supplier delivery index fell from 52.8 to 51.3 in August, and has been in the expansion range for the 21st consecutive month. Since this indicator above 50 indicates a slowdown in delivery speed, the data shows that supplier deliveries are still slow, but the index has declined for the fourth month in a row, which means that supply chain delays have eased somewhat.

High interest rates continue to impact real estate, 30-year mortgage interest rates rise to 6.67%

High interest rates are still putting pressure on some interest-sensitive industries in the US.

Companies surveyed in the construction industry said that fluctuations in the bond market drove interest rates on 30-year mortgages in the US to 6.67%, further weakening the affordability of housing and causing potential buyers to leave the market again.

As the peak season for traditional home sales nears its end and the new school year begins, the new-build housing market continues to slow.

The company said that helping buyers lower mortgage interest rates and provide price discounts through subsidies has gradually become the norm in the current new housing market from a promotional tool used to attract additional traffic in the past.

The financial and insurance industries are also cautious. The companies interviewed said that rising medical costs, increased regulatory complexity, and reimbursement pressure have made health insurance companies pay more attention to cost control, supplier performance, operational efficiency, and risk management, and scrutinize large-scale procurement and strategic investments more strictly.