The ISM Services PMI edged up to 54.1% in July, marginally missing the market consensus estimate of 54.5%. Released this morning by the Institute for Supply Management (ISM), the headline index ticks up slightly from June's 54.0%, marking the 25th consecutive month of overall expansion for the U.S. services economy.
📊 Index Breakdown & Divergence
The headline stability masks a widening divide between surging business demand and a sudden retrenchment in sector employment:
- Business Activity Jumps: The Business Activity Index surged 3.7 percentage points to 59.1% (up from 55.4% in June), indicating heavy transaction volumes.
- New Orders Accelerate: The New Orders Index climbed 2.1 percentage points to 57.2%, expanding for its 14th consecutive month. Respondents noted a massive seasonal lift from summer tourism, university renovation projects, and heavy spending tied to the ongoing FIFA World Cup.
- Employment Plummets: In a stark contradiction to the output data and earlier S&P metrics, the Employment Index dropped into contraction at 47.4% (down 3.8 percentage points from 51.2% in June). Survey panelists explicitly attributed the staff reductions to targeted AI implementation and corporate shifting toward lower-cost international geographies.
⚠️ Price Pressures Reignite
The most alarming aspect of the morning report for policymakers is the sharp re-acceleration of service-side inflation:
- Prices Paid Index: The index measuring input costs jumped to 70.3%, dramatically exceeding the consensus forecast of 65.0% and increasing from June's 67.7%.
- Inflation Drivers: Supply executives highlighted persistent headwinds from tariffs, rising labor costs, and localized pricing impacts resulting from the ongoing run-up in petroleum costs tied directly to the Middle East conflict.
📈 Industry Performance Winners & Losers
Out of the 17 tracked non-manufacturing sectors, 13 services industries reported growth in July:
- Top Gainers: Retail Trade, Transportation & Warehousing, Wholesale Trade, and Management of Companies & Support Services led the expansion.
- In Contraction: Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Real Estate, Rental & Leasing; and general "Other Services" contracted.
With both the ISM and S&P Services data now finalized for July, let me know if you would like to explore how the Federal Reserve might weigh the conflicting employment signals, look at the broader ISM Manufacturing report from earlier this week, or review global stock market reactions to the hot inflation data.
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