(Aug 5): The US service sector expanded at a steady pace in July, bolstered by a pickup in new orders and business activity.

The Institute for Supply Management’s (ISM) services index rose 0.1 of a point to 54.1, according to data released on Wednesday. Readings above 50 indicate expansion.

New orders growth accelerated and a measure of business activity climbed to a five-month high, pointing to resilient consumer demand. Even so, rising costs for services and materials continued to weigh on firms.

ISM’s index of prices paid jumped to 70.3 in July as the collapse of an interim deal between the US and Iran pushed oil and gasoline prices higher.

Some firms may be choosing to hold off on hiring as persistently high costs pressure profits and consumers. The group’s employment gauge signalled the sharpest contraction in headcount since March.

“Tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports,” Steve Miller, chair of ISM’s Services Business Survey Committee, said in a statement. “The World Cup was again cited in the comments regarding increased business activity and new orders. Overall, the US services economy continues to be resilient.”

Thirteen services industries reported growth, including retail trade, transportation and warehousing and construction. Four sectors contracted. 

“Sales continue to slide despite increased discounts. Mounting cost pressures from all fronts.” — Construction

“Business is starting to pick up especially with smaller firms. Just hope it keeps improving.” — Management of Companies & Support Services 

“Conditions are largely unchanged from last month. The exception is pricing, which continues to rise, driven mainly by fuel and labour costs. Demand remains stable.” — Transportation & Warehousing

“Economic conditions remain stable. Banking activity continues to be supported by healthy commercial client demand, though businesses remain cautious amid interest rate and inflation uncertainty.” — Finance & Insurance

“Uncertainty on how the Iran conflict will impact the price of oil, as well as the knock-on effect to construction and other materials. The city has several capital projects pending and ongoing, which will be impacted.” — Public Administration

“Business is more robust than expected, considering some of the economic headwinds still plaguing the industry. Lumber supply is tighter, and freight rates and availability are challenges. Many of our builders are pushing back hard on price increases. However, the outlook is favourable for the remainder of 2026.” — Wholesale Trade

“For the Federal Reserve, the report sends mixed signals ahead of the September FOMC meeting,” Bloomberg Economics’ Andrew Sacher said in a note. “Contracting employment argues for patience, while resurgent price pressures keep another rate hike in play.”

The government’s July jobs report, out on Friday, is forecast to show solid hiring in the month. Economists estimate non-farm payrolls, which include both factories and service-providing firms, rose by 80,000.

Wednesday’s data showed order backlogs barely grew. Measures of imports and exports, however, climbed to their highest levels since April.

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