US Services Strengthen in August as New Orders Rebound

Dual surveys show steady demand and busier activity, although softer hiring data keep a Fed rate cut in play this month.

An auto mechanic stands at a workbench at an automotive service in Louisville, Ky., on Jan. 13, 2022. Jon Cherry/Getty Images

The U.S. services sector picked up in August, with firms reporting stronger demand and busier activity even as hiring cooled and tariff worries lingered, according to two business activity surveys released on Sept. 4.

The Institute for Supply Management (ISM) said its services gauge rose to 52 in August from 50.1 in July, marking a third straight month of growth. A separate S&P Global survey painted a similar picture, with its services index coming in at 54.5, still solid expansion, though a touch softer than July.

Together, the reports suggest the services economy is doing much of the heavy lifting for overall growth heading into fall. America’s manufacturing sector, while showing signs of improvement, has lagged.

The jump in the ISM’s services index was driven by a significant improvement in new orders—which rose from 50.3 in July to 56 in August—along with stronger business activity, which increased from 52.6 to 55. Readings above 50 indicate expansion, while those below represent contraction.

“That was better than expected and marked the highest level since February, suggesting resilience in the still-expanding services sector despite some headwinds,” Priscilla Thiagamoorthy, senior economist at BMO, said in commentary on the ISM’s headline activity gauge.

Price pressures eased a little but remained elevated at a reading of 69.2, the ISM data showed, while the employment gauge stayed in contraction at 46.5, signaling continued caution on staffing.

“Prices at 69.2 signal tariff-driven cost pressure that’s proving sticky in services even as goods stay tame,“ David Johnson, CEO of Vervent, a San Diego-based consumer credit servicing firm, told The Epoch Times in an emailed statement. ”ISM Services at 52.0 and Business Activity at 55.0 point to positive but not runaway growth—think resilient Q3, uneven by sector.”

Johnson added that he expects companies with pricing power and variable labor models to defend their margins, while “everyone else will lean into efficiency.” Consumers, he said, will likely “keep spending, but trade down and demand more value per dollar.”

S&P Global’s report echoed the mixed tone. It showed services activity expanding for a 31st straight month, but flagged weaker sentiment as firms navigated policy uncertainty and higher input costs tied to tariffs. The firm said the combined services-and-manufacturing readings are consistent with solid third-quarter growth, even as optimism about the year ahead has cooled.

“Although weaker than signaled by the preliminary ‘flash’ PMI reading, and below that seen in July, the expansion of the service sector in August was still the second strongest recorded so far this year,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. “Together with a robust manufacturing PMI reading, the surveys are consistent with the US economy growing at a solid 2.4 percent annualized rate in the third quarter.”

The firm’s manufacturing activity gauge, released earlier this week, showed U.S. manufacturing recording its strongest pace of growth in more than three years. Producers reported a jump in new orders, mostly from domestic demand, along with stepped-up hiring to keep up with increased workloads.

“US manufacturing was running hot over the summer,” Williamson said in a separate statement. “The past three months have seen the strongest expansion of production since the first half of 2022, with the upturn gathering pace in August amid rising sales.”

Hiring increased in August in both services and manufacturing sectors, per S&P Global data, which diverged from the ISM numbers in this regard.

“The employment index stayed in the contraction zone,” Thiagamoorthy said of the ISM’s lackluster hiring data.

The latest labor market readings point to cooling. ADP estimated private payrolls rose by 54,000 in August, about half of July’s 106,000; initial jobless claims for the week ending Aug. 30 hit the highest since June; and July job openings fell to near a one-year low.

The latest payroll data show that the U.S. economy added 22,000 new jobs in August, falling short of economists’ expectations, while the unemployment rate ticked up to 4.3 percent.

“A Fed rate cut remains on the table for this month,” Thiagamoorthy said.