U.S. Services Growth Accelerates as ISM Prices Gauge Hits Four-Year High

Activity across the U.S. services sector accelerated in August, with an Institute for Supply Management gauge rising to 55.4 as business activity and new orders strengthened. The expansion was accompanied by renewed price pressure, however, as ISM’s Prices Index climbed to 72.6, matching its August 2022 level and reaching its highest point in four years.

The headline Services PMI increased 1.3 percentage points from 54.1 in July and remained above the 50 level that separates expansion from contraction. It marked the 26th consecutive month of growth for the services sector. The gain was broad enough to push the index 1.7 points above its 12-month average of 53.7, while 12 industries reported growth and five reported contraction.

ISM’s August Services PMI report, released September 3, showed an especially strong pickup in demand. The Business Activity Index rose to 61.7 from 59.1, its highest reading since November 2022. New Orders increased to 60.9 from 57.2, the strongest level since February 2023. Those two measures point to a services economy entering late summer with more momentum than the headline index alone suggests.

Demand strengthened even as hiring stayed weak

The acceleration was not matched by the labor component. ISM’s Employment Index registered 47.8, up only slightly from 47.4 in July and still in contraction territory for a second consecutive month. Employment has been below 50 in 13 of the past 18 months, and its August reading remained below the 12-month average of 48.8.

There was some improvement beneath that weak headline. The share of respondents reporting lower employment fell to 17.1% from 19% in July, while 11.8% reported higher staffing. ISM said the combination of multiyear highs in business activity and new orders could eventually support more hiring, but the August survey itself does not yet show that shift taking hold.

The pattern varied widely by industry. Accommodation & Food Services, Utilities, Mining, Wholesale Trade, Transportation & Warehousing, Retail Trade and Construction reported higher employment. Finance & Insurance, Real Estate, Information, Health Care & Social Assistance and several other industries reported declines. One respondent cited difficulty replacing workers lost through normal attrition, while another pointed to competition from a local defense-sector hiring surge.

Other demand measures strengthened at the same time. The Backlog of Orders Index rose 4.7 points to 55.6, its seventh straight month in expansion territory, while New Export Orders climbed to 56.3 from 52.0. Inventories increased more rapidly as well, with that index reaching 56.7 from 51.4. The combination suggests many service businesses were seeing firmer order flows even as they remained cautious about staffing.

Price pressure returned to levels last seen in 2022

The most striking part of the report was the Prices Index. It increased 2.3 percentage points to 72.6, the fifth reading above 70 in the past six months and the 21st consecutive month above 60. Prices paid by services organizations have now increased for 111 straight months according to the survey.

ISM said 44.8% of respondents reported higher prices in August, compared with 2.3% reporting lower prices. Fifteen industries reported paying more, and none reported an overall decrease in prices. Transportation & Warehousing was at the top of the list, followed by Other Services, Real Estate, Finance & Insurance and Information.

The commodity detail helps show where those pressures were coming from. Respondents again cited diesel, gasoline and other petroleum-related products as rising in price. Computers and related items, copper, freight, food products, labor, memory products, software licensing and steel products were also listed among items that became more expensive. ISM added graphics processing units and steel to its list of commodities in short supply.

Tariffs and the Middle East conflict were the two most frequently cited supply-chain concerns, according to ISM. An Accommodation & Food Services respondent described positive business conditions but said policy changes and the conflict were creating input-cost headwinds. A Wholesale Trade respondent pointed to continued increases in copper, aluminum and polyvinyl chloride products alongside tariff-related pricing effects.

The survey’s price measure is not the same thing as a consumer inflation report, and it should not be read as a direct forecast of the Consumer Price Index. It does show that a broad group of service businesses continued to encounter higher input costs at a time when demand indicators were strengthening. That combination can matter for the inflation outlook because services account for a large share of U.S. economic activity and businesses may try to pass some cost increases through to customers.

Growth was broad, but the sector remained uneven

Twelve services industries reported overall growth in August. Mining led the list, followed by Real Estate, Rental & Leasing, Accommodation & Food Services, Wholesale Trade, and Arts, Entertainment & Recreation. The latter two consumer-facing categories were among the fastest-growing industries as positive summer seasonality supported activity.

Five industries contracted: Agriculture, Forestry, Fishing & Hunting; Construction; Management of Companies & Support Services; Finance & Insurance; and Health Care & Social Assistance. That split underscores why a stronger headline reading does not mean every part of the services economy is moving in the same direction.

Supplier deliveries also continued to slow, though at a less pronounced rate. The Supplier Deliveries Index fell to 51.3 from 52.8, the fourth consecutive monthly decline in the index and its lowest level since October 2025. Because ISM treats readings above 50 in this component as slower deliveries, the August result still points to some supply friction, but less than in recent months.

Respondent comments captured the mixed picture. Some businesses reported stronger seasonal demand, improved orders and solid local conditions. Others described higher energy costs, tariffs, shortages of technology components and constraints on staffing. In retail, one respondent said memory shortages were worsening, while a professional-services respondent said tariffs were keeping landed costs elevated and encouraging dual sourcing and nearshoring efforts.

The August report therefore presents a stronger growth signal alongside two clear constraints. Demand accelerated enough to lift business activity and new orders to multiyear highs, but hiring remained below the expansion threshold and the prices gauge returned to a level last seen in 2022. ISM’s next Services PMI release is scheduled for October 5, when September data will show whether the late-summer acceleration persisted and whether the latest rise in input costs began to ease.