U.S. service industry accelerates expansion in August! ISM service sector PMI rises to 55.4, price index reaches a four-year high.

In August, the pace of expansion in the U.S. services sector further accelerated. Data released by the Institute for Supply Management (ISM) on Thursday showed that the ISM Services PMI rose to 55.4 in August, up from 54.1 in July, marking the 26th consecutive month in the expansion range. Both the business activity and new orders indices reached multi-year highs, indicating that demand in the U.S. services sector remains strong. However, the employment index shrank for the second consecutive month, while the price index rose to 72.6, the highest level since August 2022, underscoring the coexistence of economic resilience and inflationary pressures in the U.S. The Services PMI rose to 55.4, with both business activity and new orders strengthening. The data showed that the ISM Services PMI for August recorded 55.4, a 1.3-point increase from July, and 1.7 points higher than the 12-month average of 53.7. Notably, the growth momentum in the services sector has significantly strengthened. The business activity index jumped from 59.1 to 61.7, the highest level since November 2022 when it recorded 62.7; the new orders index rose from 57.2 to 60.9, reaching its highest level since February 2023. Backlogs also showed a notable increase. The backlog index surged 4.7 points to 55.6 in August, remaining in the expansion range for the seventh consecutive month and reaching the highest level since February 2026. External demand has also improved. The new export orders index rose from 52 to 56.3, maintaining a level of 50 or above for the seventh consecutive month; the import index increased from 51.8 to 56.3, expanding for the second consecutive month. The inventory index rose significantly from 51.4 to 56.7, a jump of 5.3 points; the inventory sentiment index reached 54.1, remaining in the expansion range for the 40th month in a row. By industry, 12 out of 17 service industries experienced growth in August, while five industries contracted. The fastest-growing sectors included mining, real estate and rental, accommodation and food services, wholesale trade, and arts, entertainment and recreation; in contrast, the construction, finance and insurance, and healthcare and social assistance sectors saw contractions. ISM pointed out that seasonal demand during summer has provided noticeable support to the services sector, with accommodation and food services, as well as arts, entertainment, and recreation, featuring among the top five fastest-growing industries in August. Inflationary pressures have rekindled, with the price index hitting a four-year high. More concerning than the acceleration in economic activity is the price pressure. The ISM Services Price Index rose further from 70.3 to 72.6 in August, marking the highest level since August 2022. This represents the fifth time in six months that it has surpassed 70, and the indicator has remained above 60 for 21 consecutive months. Its average for the past 12 months has further risen to 68.5, the highest since April 2023. The range of commodity price increases has also broadened significantly. In July, surveyed companies reported price decreases for six commodities, but in August only fuel was reported to have a price decline, and fuel has consistently been reported as having rising prices by some companies for the seventh consecutive month. Oil-related products, diesel, and gasoline were once again listed among the goods with rising prices in August. The impact of the Middle East conflicts on energy prices has started to transmit to the operational costs of businesses. An educational services firm noted that conflicts in Iran and tight oil supplies have led to increased fuel procurement costs. Wholesale trade companies reported that prices for bulk raw materials such as copper, aluminum, and polyvinyl chloride (PVC) continue to rise weekly, while tariffs and geopolitical factors are pushing prices higher. Meanwhile, graphic processing units (GPUs) and steel have for the first time been listed as commodities facing supply shortages. Retail sector firms have also indicated that the memory shortage issue is worsening, leading to low inventories for devices reliant on memory cards, while prices remain elevated. Employment has contracted for the second consecutive month, but stronger demand may prompt companies to rehire. In stark contrast to the strong business activity, employment in the U.S. services sector remains weak. The employment index stood at 47.8 in August, slightly rising by 0.4 points from July's 47.4, but still below the neutral line of 50, indicating a contraction in service employment for the second month in a row. This index is also below the 12-month average of 48.8, and has been below 50 for 13 of the last 18 months. However, there are some potential signs of improvement in the labor market. ISM noted that the proportion of companies reducing headcount fell from 19% in July to 17.1% in August. At the same time, both the business activity and new orders indices rose to multi-year highs, and backlogs have significantly increased. Some companies even mentioned that the increase in backlogged orders is due to insufficient staffing. ISM believes that if demand continues to maintain its current strong momentum, service sector businesses may need to increase hiring in the future. Tariffs and conflicts in the Middle East have again become the biggest supply chain concerns. ISM reported that tariffs and conflicts in the Middle East have once again emerged as the most frequently mentioned supply chain issues by surveyed firms in August. Firms in the accommodation and food services sector stated that overall business conditions remain positive, but ongoing changes in U.S. government policies, including tariffs and Middle Eastern conflicts, are creating persistent cost pressures for businesses and their suppliers. Companies in the professional, scientific, and technical services sectors expressed that the U.S. "Section 301" tariffs combined with new tariffs related to forced labor have kept the landed costs of imported goods at elevated levels. Some companies are attempting to mitigate risks by seeking second suppliers and assessing nearshoring production, but constraints still exist in terms of qualified capacity, delivery cycles, and product quality for certain special materials and components. As a result, businesses need to maintain higher inventory buffers and longer procurement planning cycles, while profit margins are being squeezed, and the increased costs can only be partially passed on to customers. The supplier delivery index fell from 52.8 to 51.3 in August, remaining in the expansion range for the 21st consecutive month. Since this index above 50 indicates a slowdown in delivery speed, the data shows that supplier deliveries are still slow, though the index has declined for the fourth consecutive month, indicating a slight alleviation in supply chain delays. High interest rates continue to impact real estate, with the 30-year mortgage rate rising to 6.67%. High interest rates continue to pressurize certain interest-sensitive sectors in the U.S. Respondents in the construction industry reported that fluctuations in the bond market have pushed the 30-year mortgage rate in the U.S. to 6.67%, further weakening housing affordability and causing potential homebuyers to retreat. As the traditional home sales season approaches its end and the new school year begins, the new residential market continues to slow down. Businesses have indicated that subsidies to help homebuyers lower mortgage rates and offer price discounts have shifted from tools used to attract additional foot traffic in the past to the norm in the current new home market. The finance and insurance sector remains cautious as well. Surveyed firms reported that rising healthcare costs, increased regulatory complexity, and reimbursement pressures have led health insurance companies to place greater emphasis on cost control, supplier performance, operational efficiency, and risk management, with a stricter review process for major procurements and strategic investments.