The ISM Services PMI rose to 54.5 in August from 52.7 in July, handily beating the 52.5 reading consensus was expecting. This is the eighth consecutive month of expansion for the services sector.
The business activity sub-index firmed a more modest 0.2 percentage points (pp) to 57.3 in August.
The new orders index rose 2.5 pp to 57.5, the strongest print since February.
The prices paid component rose to 58.9. Despite the second consecutive uptick in price growth, the index is still lower than at any point between June 2020 and April 2023.
Supplier delivery times registered 48.5, up from 48.1 in July, while the backlog of orders index plummeted 10.3 points to 41.8.
The employment sub-component jumped 4.0 pp to 54.7.
Thirteen out of 18 industries expanded in August, down from fourteen in July.
Key Implications
After a bumpy few months, the services sector is showing renewed verve. The headline index has posted gains in two of the past three months and is approaching levels registered in January and February. That said, the expansion is not progressing at the same pace as in 2021 and 2022. Growth looks set to proceed at a more moderate pace as the new orders and business activity sub-indexes are both a touch below their respective ten-year averages.
While the expansion has slowed from the gangbusters pace in 2021 and 2022, healthy indications from the services sector are showing an economy that still has something left in the tank. Moreover, the growth is coming at a time that labor markets remain tight – putting a floor under wage growth.
