Key facts
- U.S. services sector activity expanded in July.
- The ISM nonmanufacturing index rose to 54.1, indicating growth.
- Input costs for businesses increased due to supply constraints and strong demand.
- New orders for services businesses saw a significant jump.
- Thirteen industries reported growth, including retail trade and construction.
The U.S. services sector demonstrated continued strength in July, with the Institute for Supply Management's (ISM) nonmanufacturing purchasing managers index rising slightly to 54.1 from 54.0 in June. This indicates ongoing expansion in a sector that constitutes a significant portion of the U.S. economy. However, the report highlighted a tension between robust demand and persistent supply constraints, which are driving up input costs for businesses. This situation could contribute to elevated inflation levels.
Key components of the report showed a notable increase in new orders, jumping to 57.2 from 55.1, suggesting businesses are anticipating continued demand, possibly influenced by efforts to secure supplies ahead of potential disruptions related to the Middle East conflict. The FIFA World Cup also provided a likely boost to new orders. Despite strong demand, supplier deliveries continued to lag, with the index slipping to 52.8 from 54.4, indicating that suppliers are still struggling to meet demand.
Purchasing managers cited rising costs for fuel and labor as primary drivers, with some reporting increased competition for materials and a trend of suppliers requiring upfront payments. While tariff impacts and the Middle East conflict were mentioned less frequently than in previous reports, they remain factors influencing business operations. Thirteen industries reported growth, including retail trade, information, and construction, while sectors like healthcare and social assistance experienced contraction.