August 5, 2026

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of service sector firms.  The business activity index for the service sector rose 3.7 points in July to 59.1 after having declined 2.3 points in June.  We tend to focus on the business activity component as a measure of “production” because it seems to track better with the pace of economic activity.  Trump’s imposition of tariffs, federal government layoffs, and deportation of immigrants made people in the service sector nervous throughout 2025.  However, since the beginning of the year this index has moved upwards and is now expanding nicely..

The composite index rosed 0.1 to 54.1 after having declined 0.5 point in June.  Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management’s  Business Survey Committee said, “Thirteen industries reported growth in July, one fewer than in June; four reported contraction, equaling the June total. The July Services PMI^® reading of 54.1 percent is 0.7 percentage point above the 12-month average of 53.4 percent. For the seventh straight month, that figure increased, with an uptick of 0.3 percentage point over June’s 12-month average of 53.1 percent.”

He added that, “Tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports. The World Cup was again cited in the comments regarding increased business activity and new orders. Overall, the U.S. services economy continues to be resilient. Concerns still exist regarding mortgage and inflation rates, and we are still in the midst of pricing impacts due to the recent run-up in petroleum costs.”

At its current level the ISM group says that is consistent with 1.9% growth in GDP.

Comments from respondents include:

• “Overall volume of business is slightly down for the year.” [Agriculture, Forestry, Fishing & Hunting]
• “Sales continue to slide despite increased discounts. Mounting cost pressures from all fronts.” [Construction]
• “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. Overall outlook remains positive for both the banking industry and my company.” [Finance & Insurance]
• “In the tertiary care segment of hospital operations, patient volumes, revenue and activity across the board are up, and given the economic climate, this was an unexpected result. Supply chains are operating as expected: There are few, if any, impactful back orders, deliveries are consistent and fill rates are up. Employment is still in high demand, yet our institution appears to be faring well as full-time employee positions are filling without excessive recruitment. Forecast remains above average.” [Health Care & Social Assistance]
• “Business is starting to pick up especially with smaller firms. Just hope it keeps improving.” [Management of Companies & Support Services]
• “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]
• “Network gear supply (internet access points and switches) for store equipment set up on four- to six-month lead times; needing to place large order in anticipation of new store openings in order to have sufficient network gear to run the store.” [Retail Trade]
• “Conditions are largely unchanged from last month. The exception is pricing, which continues to rise, driven mainly by fuel and labor costs. Demand remains stable.” [Transportation & Warehousing]
• “Electric utility materials continue to be in high demand, causing competition among utilities for production slots. Furthermore, more suppliers are requiring progress payments or a down payment on goods as part of PO agreements.” [Utilities]
• “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 favorable for the remainder of 2026.” [Wholesale Trade]

The non-manufacturing orders component rose 2.1 points in July to 57.2 after having fallen 2.2 points in June.  The index has expanded for 14 consecutive months. Comments from respondents include: “Beginning of new fiscal year — budgets in place and various large dollar projects (renovations) to complete this summer before the fall semester begins” and “World Cup.”

The ISM on-manufacturing index for employment fell 3.8 points in July to 47.4 after having risen 3.3 points in June. Seven industries reported an increase in employment in July.  Eight industries reported a decline.. Comments from respondents include: ““We’re seeing a small reduction at the moment, some coinciding with AI implementation” and “Lower employment in the U.S., higher in India and other low-cost geographies; H-1B visas have increased as well.”

The suppler deliveries component fell 1.6 points in July to 52.8 after having declined 0.8 point in July.  This component is reversed in the sense that a reading above 50 percent indicates slower deliveries to service sector firms which is typically indicative of a strengthening economy.    A reading below 50 percent indicates faster deliveries. Thus, firms reported slower delivery times in June for the 19th month in a row. Comments from respondents include: “Some smaller suppliers are starting to be stressed financially, causing delays in shipments, missed shipments and other issues; we are spending more time monitoring and managing these small but important suppliers to our business” and “Lead times are doubling on specific electrical conductor.”

Finally, the price component rose 2.6 points in July to 70.3 after having declined 3.6 points in June.  Seventeen service sector industries reported an increase in prices paid during the month.  Price pressures are continuing to climb in the service sector in part because of tariffs but, in recent months, the gain was largely related to oil prices.  Miller noted, “The Prices Index broke the 70-percent threshold for the fourth time in five months, hitting 70.3 percent. In July, however, the number of commodities reported as down in price increased to six, up from three the previous month. Petroleum-related products and plastics were again reported as commodities up in price. Transformers are no longer reported as a commodity in short supply but were added to the list of those up in price.

The manufacturing sector of the economy contracted for a couple of years but has rebounded since the beginning of the year . The service sector has also gathered momentum since January. Look for 3.5% GDP growth in the third quarter of 2026 and 2.3% growth for the year as a whole.

.Stephen Slifer

NumberNomics

Charleston, SC