US services activity strengthened more than expected in August, with ISM PMI Services rising from 54.1 to 55.4, above 54.3 consensus and marking a 26th consecutive month of expansion. Demand indicators were particularly strong: Business Activity jumped from 59.1 to 61.7, while New Orders surged from 57.2 to 60.9, both reaching multi-year highs. Backlogs also accelerated sharply, pointing to stronger underlying demand momentum than headline alone suggests.
Labor conditions remained the clear weak spot. Employment improved only marginally from 47.4 to 47.8, staying in contraction for a second straight month even as activity and orders strengthened. That divergence suggests services firms are still reluctant to add headcount despite healthier demand. At same time, price pressures intensified again, with Prices rising from 70.3 to 72.6, matching highest level since August 2022 and remaining above 70 for fifth time in six months.
August therefore delivered a distinctly mixed but inflationary growth signal: services demand is accelerating, but hiring is not following and cost pressures remain elevated. For Fed, combination of stronger activity and hotter prices argues against reading softer employment indicators in isolation, while continued contraction in services employment keeps Friday NFP especially important for determining whether weak hiring is becoming a broader labor-market problem.
Data Summary
| Indicator | August | July | Trend |
|---|---|---|---|
| PMI Services | 55.4 | 54.1 | Growth accelerated; above 54.3 consensus |
| Business Activity | 61.7 | 59.1 | Growth accelerated to multi-year high |
| New Orders | 60.9 | 57.2 | Demand strengthened sharply |
| Employment | 47.8 | 47.4 | Improved slightly but remained in contraction |
| Supplier Deliveries | 51.3 | 52.8 | Deliveries still slowing, but at slower rate |
| Inventories | 56.7 | 51.4 | Inventory growth accelerated |
| Prices | 72.6 | 70.3 | Inflation pressure intensified |
| Backlog of Orders | 55.6 | 50.9 | Backlogs rose sharply |
| New Export Orders | 56.3 | 52.0 | Export demand strengthened |
| Imports | 56.3 | 51.8 | Import growth accelerated |
Key Takeaways
- US PMI Services rose from 54.1 to 55.4, beating 54.3 consensus and signaling faster expansion in August.
- Demand was much stronger than headline alone suggests. Business Activity jumped to 61.7 and New Orders to 60.9, both reaching multi-year highs.
- Backlogs climbed sharply to 55.6, reinforcing evidence that demand strengthened materially.
- Employment remained notable weak spot. Index edged from 47.4 to 47.8, but stayed in contraction for second straight month despite booming activity and orders.
- Price pressure intensified further, with Prices rising from 70.3 to 72.6, matching highest level since August 2022.
- New Export Orders and Imports both climbed to 56.3, pointing to firmer external and import demand.
- Overall mix is unusual: hot growth, hot prices, weak jobs. Strong activity and inflation argue against straightforward slowdown narrative, while contracting employment keeps Friday NFP critical for Fed outlook.