ISM Services PMI at 55.4 as prices paid hit 72.6 and employment stays below 50
The August ISM Services PMI registered 55.4 on Thursday, September 3, remaining above 50 as new orders rose to 60.9 and prices paid climbed to 72.6.
Prices paid at U.S. services firms rose in August to 72.6, matching the highest reading since August 2022, with the consumer-price report due September 11 and the Federal Open Market Committee meeting September 15-16. Hiring did not follow the work. The Institute for Supply Management's Employment Index stayed below 50 at 47.8 for a second month, and Steve Miller, chair of ISM's Services Business Survey Committee, told reporters why: when firms cannot control input costs, "the labor lever is a common one that services companies are pulling."
The Services PMI, an equal-weighted composite of business activity, new orders, employment and supplier deliveries, registered 55.4 at 10 a.m. Eastern on Thursday, 1.3 points above July's 54.1 and above FXStreet's consensus of 54.3. That is a twenty-sixth straight month above 50. On a diffusion index, 50 is the only hard landmark: more firms reported expansion than contraction. Two of the four pieces sat well above that line. Employment did not.
Why hiring lagged the orders
The two demand gauges did the lifting. The Business Activity Index rose 2.6 points to 61.7, its twenty-sixth month in expansion. The New Orders Index rose 3.7 points to 60.9, a fifteenth month above 50. Backlogs followed: the Backlog of Orders Index jumped 4.7 points to 55.6, a seventh month of expansion, and inventories rose 5.3 points to 56.7. Some respondents attributed the backlog buildup to low staffing at their own firms.
Only 11.8% of firms added staff in August. 17.1% cut, down from 19% in July, and 71.1% left payrolls unchanged. The Employment Index came in at 47.8, 0.4 point above July's 47.4 and 1 point under its 12-month average of 48.8. Miller noted it has sat below 50 in 13 of the last 18 months. Seven industries added jobs.
The comments name the mechanism the index only counts. One respondent said, "We have lost employees due to normal attrition and are having issues backfilling these positions with qualified candidates." Another: "In need of more personnel; on hiring freeze." Miller told reporters companies are "reluctant to rehire, even with the stronger business," thinking an open seat "won't be a crisis if it stays open for a while."
Supplier deliveries, the fourth piece of the headline, registered 51.3, down 1.5 points from 52.8. In ISM's convention, a reading above 50 means deliveries slowed. That has now been true for 21 months. At 51.3 the index sat close to the 50 line. The distance that pulled the 55.4 headline up was in orders and activity; the distance that pulled it down was employment.
The August headline sits 1.7 points above its 12-month average of 53.7. February's 56.1 remains the high in that window.
Prices paid at 72.6
Prices paid is not in the headline composite, and it moved. The Prices Index rose 2.3 points to 72.6, above 70 for the fifth time in six months, tying the August 2022 print. Miller's committee has now recorded rising prices for 111 consecutive months. The gauge has been above 60 for 21 months.
In August, 44.8% of services firms reported paying more, 52.9% reported no change, and 2.3% reported paying less. Fifteen industries reported higher prices. Petroleum-related products, diesel and gasoline were among the items listed as up in price. An Accommodation & Food Services manager said general conditions were positive but that tariffs and the Middle East conflict had created "numerous input cost headwinds for suppliers and us." A Professional, Scientific & Technical Services respondent said stacked Section 301 duties and newer forced-labor tariffs "are keeping landed costs elevated," with "margin pressure that we can only partially pass through." In Wholesale Trade, copper, aluminum and polyvinyl chloride were still seeing weekly price adjustments, and a respondent said supplier capacity remained strained by high demand. A parallel manufacturing survey, released Tuesday, left its own Prices Index unchanged at 71.1. Both sectors are still reporting widespread cost increases.
Finance, health care and construction contracted
Twelve of 18 services industries expanded in August, one fewer than in July. Five contracted, one more than in July: Agriculture, Forestry, Fishing & Hunting; Construction; Management of Companies & Support Services; Finance & Insurance; and Health Care & Social Assistance. ISM ranks the industries reporting growth from most to least: Mining; Real Estate, Rental & Leasing; Accommodation & Food Services; and Wholesale Trade led that list.
A Construction respondent said, "The bond market pushed 30-year mortgage rates up to 6.67 percent, reducing affordability and moving prospective buyers back to the sidelines." Rate buydowns and discounts, the same respondent said, have become "the norm instead of the tool to drive traffic." That tracks an industry already on the contracting list.
Manufacturing cooled; the Fed still has CPI
Factories did not tell the same demand story. The ISM Manufacturing PMI, out Tuesday, fell to 54.6 from 55.6, with new orders down 3.0 points to 53.7, while remaining above 50. Services new orders, at 60.9, moved the other way. S&P Global's separate services PMI, also released Thursday, rose to 56.5 from 54.6, another diffusion reading of faster expansion, built on a different sample and a different questionnaire. That survey showed employment increasing solidly, with the rate of job creation the highest since January 2025. ISM's employment gauge is the one that stayed below 50.
CME FedWatch odds of a September rate hike stood at 50.4%, down from 63.2% the prior session. Federal Reserve Governor Christopher Waller, speaking in a Reuters interview before the 10 a.m. survey, said that if incoming data keep showing disinflation he would be "inclined to support holding" the federal funds rate. The 10-year Treasury yield closed Thursday at 4.77%, with the 2-year at 4.34%. Waller did not take a September hike off the table; he said a hot inflation print could still nudge him toward one. August CPI is due September 11. The Federal Open Market Committee meets September 15-16.
The services print does not settle that choice. It leaves firms still taking orders, still paying prices last matched in August 2022, and still treating headcount as the cost they can pull.
Frequently asked
Why is service sector hiring contracting despite rising demand?
Companies are reluctant to hire and are using labor as a lever to manage margins because they cannot control rising input costs.
What is keeping input costs high for services firms?
Firms are facing headwinds from rising fuel prices, weekly price adjustments on metals, and elevated import duties.
Which service industries are struggling?
Agriculture, construction, corporate management, finance, and health care all contracted.