ISM® PMI® Reports Roundup: August Services

As this space discussed a month ago, August can be a tough to forecast for the U.S. services sector: With peak vacation season winding down and school resuming, it’s not easy to predict how much consumer spending on retail and experiences will taper.

From that standpoint, the release of the ISM^® Services PMI^® Report on Thursday elicited more than a sigh of relief among the economic and investment communities. It was lauded in many corners, as the composite index reading of 52 percent — fueled by strong expansion of business activity and new orders — beat expectations.

“This is a good day to watch yields climb up a little bit, and I wouldn’t be surprised to see stocks do a little better as well,” CNBC analyst Rick Santelli said after the report’s release. “ISM — the August read on the services sector, the important swath of the U.S. economy. And the numbers are good: 52 percent on the (composite) index, better than expected and higher than 50.1 percent (in July). … This is definitely a solid number.”

He added, “All of the numbers we like are sequentially higher, and (the Prices Index) is 0.7 percentage point lower, so we are making some progress.”

A surprisingly good (or bad) PMI^® reading always requires a look under the hood, and caveats could be found in the subindex data and survey respondents’ comments. However, Steve Miller, Chair of the Institute for Supply Management^® Services Business Survey Committee, is cautiously optimistic, telling a conference call of reporters on Thursday that the demand growth could be more than a blip with holiday peak season looming.

“In the commentary from the respondents, my personal perspective is that there were many months when people were confused and trying to plan around the impact of tariffs,” he said. “There’s only so long you can wait before you need to get back into the mix and start ordering, and that was a piece of (the demand increase). The other piece is that new contracts are being put in place at higher rates, and some companies are buying ahead of those new prices coming in with their updated contracts.”

That purchasing spree was evident in the data: The Business Activity (55 percent) and New Orders (56 percent) indexes increased a combined 8.1 percentage points compared to their July readings, and the Imports Index (which does not directly factor into the PMI^®) elevated 8.7 points to 54.6 percent, its highest reading since January 2024 (59.9 percent).

However, the flags — if not red, at least yellow — from recent months are still flying. On the same day that the private payrolls report from ADP and the Stanford Digital Economy Lab revealed a tepid 54,000 U.S. jobs added in August, the Employment Index stayed in place, up just 0.1 percentage point to 46.5 percent.

The Prices Index remained elevated, with Santelli somewhat overstating the level of progress made: The reading of 69.2 percent is the ninth straight above 60 percent, and more companies are making clear that they can no longer hold off on passing tariff-related cost increases to customers.

Miller said that survey respondents addressed price increases due to tariffs in their comments in 12 of 18 services industries. Wrote a panelist in Agriculture, Forestry, Fishing & Hunting, whose company imports products from Europe: “Tariffs are starting to become a factor in our pricing to specific markets. … The intention is not to pass on these costs, but it's getting harder as this goes on.”

Despite some pockets of optimism, most purchasing managers across service sectors are pessimistic about the outlook and the full impact of tariffs on prices and demand. It's not as bad as in #manufacturing, but still quite downbeat. pic.twitter.com/dYxUC73Lq4

— Gregory Daco (@GregDaco) September 4, 2025

Perhaps the biggest flag was the Backlog of Orders Index, which decreased 3.9 percentage points to 40.4 percent, its lowest reading since May 2009 (40 percent). Miller noted that recent history indicates that weakness in the New Orders Index has been felt in the Backlog of Orders Index about four or five months later. In May, the New Orders Index dropped to 46.4 percent, its lowest point this year.

Head counts are also impacted, he said: “Since we hadn’t been seeing great strength in new order activity, companies are able to work through their backlogs, and they typically don’t need as many people to catch up.”

Despite those weak spots, Miller remains bullish on the services sector, pointing out on ISM’s LinkedIn Live broadcast that the rolling 12-month average for the PMI^® (52.4 percent) is higher than from September 2023 to August 2024 (51.7 percent).

Finally, the Inventories (53.2 percent) and Inventory Sentiment (55.5 percent) indexes indicate that “we’re seeing the usual heavy activity in August and September to prepare for holiday peak season,” Miller said. “That’s a sign that companies aren’t all that concerned about demand.”

The ISM^® PMI^® Reports roundup:

Bloomberg: U.S. Services Activity Expands at Fastest Pace in Six Months. “The solid advance in those demand indicators suggests the largest part of the economy is gaining some traction after five straight months of sluggishness. At the same time, a measure of materials costs showed service providers continue to battle a stiff inflationary headwind.”

Dow Jones Newswires: U.S. Services-Sector Activity Expands at Fastest Pace Since February. “The reading was the third-straight month above 50 percent — which divides expanding and contracting activity — and the highest since February. … The prices index cooled a little from July, which was the highest since November 2022.”

US ISM'S MILLER TO REPORTERS: RE CONTINUED CONTRACTION IN SERVICES EMPLOYMENT: WITH ORDER BACKLOGS DOWN AND WITHOUT STRONGER NEW ORDERS, HIRING SHRINKS AS FIRMS CAN WORK THROUGH ORDERS WITH EXISTING STAFF #ISM #services #jobs

— Mace News (@MaceNewsMacro) September 4, 2025

MarketWatch: A Big Part of the Economy Grew Faster in August, ISM Finds, but Not Because Everything is A-OK. “The economy is slowing, and businesses aren’t hiring many people, raising fresh worries about a rise in unemployment. The Federal Reserve is prepared to cut interest rates later this month to help shore up the labor market, but economists say U.S. growth is unlikely to speed up until companies gain more certainty on the level of tariffs and on which products they will apply.”

Reuters: U.S. Service Sector Regains Speed in August; Employment Weak. “Economists have blamed President Donald Trump's punitive tariffs for eroding a once-resilient labor market. The import duties, which have boosted the nation's average tariff rate to a level not seen since 1934, have stoked fears of inflation, prompting the Federal Reserve to pause its interest rate cutting cycle.”

In case you missed Tuesday’s ISM^® PMI^® Reports Roundup on the release of the August ISM^® Manufacturing PMI^® Report, you can read it here. The ISM^® Hospital PMI^® Report will be released on Monday. For the most up-to-date content on the reports under the ISM^® PMI^® Reports umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Kiwis)