July Services ISM Report: Activity Down, Prices at 2-Year High

The ISM Services Index decreased to 50.1% in July, showing economic activity growth in the services sector for the second consecutive month. The Business Activity Index remained in expansion, while the New Orders Index and Employment Index contracted. The Supplier Deliveries Index showed slower delivery performance, and the Prices Index reached its highest level since October 2022, indicating inflationary pressures.

The Institute for Supply Management (ISM) released its non-manufacturing Purchasing Managers' Index (PMI) for July, revealing a decrease to 50.1, down from 50.8 in June. This marks the second consecutive month of expansion in the services sector, which accounts for more than two-thirds of the U.S. economy [1].

The Business Activity Index remained in expansion at 52.6, indicating ongoing growth in the sector. However, the New Orders Index contracted to 50.3, signaling a slowdown in new business. Similarly, the Employment Index dropped to 46.4, reflecting a decline in hiring and job creation. These contractions suggest that businesses are facing challenges in their operations [2].

The Supplier Deliveries Index showed slower performance, with a reading of 51.0, down from 50.3 in June. This indicates potential disruptions in the supply chain, which could impact business operations and customer satisfaction [3].

One of the most notable indicators was the Prices Index, which reached its highest level since October 2022, at 69.9. This surge in prices is likely driven by the ongoing tariff policy implemented by the Trump administration. The increase in input costs is a significant concern, as it could lead to higher production costs and ultimately, higher prices for consumers [4].

Economists had anticipated a PMI reading of 51.5, indicating that the actual result was below expectations. The slowdown in new orders and the contraction in employment are particularly concerning, as they suggest that the economy may be facing headwinds in the coming months. The Federal Reserve has been closely monitoring these developments, with some governors expressing concern about the job market and the potential for stagflation [2].

The ISM survey also highlighted the impact of tariffs on global trade, with several respondents reporting increased transportation congestion and price hikes in various commodities. These factors are contributing to longer supplier delivery times and intensifying cost pressures across service industries [4].

In conclusion, the July ISM Services Index indicates a slowdown in the services sector, with contractions in new orders and employment, and a significant increase in input prices. These developments suggest that businesses are facing challenges, and the economy may be entering a phase of stagflation. The Federal Reserve will continue to monitor these trends and adjust its monetary policy accordingly.

References:
[1] https://seekingalpha.com/news/4478522-ism-services-pmi-unexpectedly-slips-in-july-stays-in-expansion-terrain
[2] https://www.investing.com/news/economic-indicators/us-services-sector-activity-slows-in-july-4170576
[3] https://www.reuters.com/world/us/us-services-activity-flatlined-july-ism-data-shows-2025-08-05/
[4] https://www.benzinga.com/markets/economic-data/25/08/46860744/ism-services-pmi-inflation-trump-tariffs-business-survey