The Services Sector Sped Up in August. Its Prices Index Reached the Highest Level Since August 2022.

The services side of the US economy grew faster in August than in July, and it paid more to do it. The Institute for Supply Management's Services PMI came in at 55.4% for August 2026, up 1.3 percentage points from July's 54.1%, in a report released September 3. A reading above 50 indicates expansion. ISM counted August as the 26th consecutive month in expansion territory.

Two things in the report point in opposite directions. Demand indexes were the strongest they have been in years. The index tracking what services firms pay for inputs was the highest since August 2022. And the employment index, for the second month running, sat below 50.

The August Numbers

• Services PMI: 55.4%, up from 54.1% in July
• Business Activity: 61.7%, up 2.6 points
• New Orders: 60.9%, up 3.7 points
• Employment: 47.8%, up 0.4 points
• Supplier Deliveries: 51.3%, down 1.5 points
• Prices: 72.6%, up 2.3 points
• Backlog of Orders: 55.6%, up 4.7 points
• Inventories: 56.7%, up 5.3 points
• New Export Orders: 56.3%, up 4.3 points
• Imports: 56.3%, up 4.5 points

What the Prices Index Is Saying

At 72.6%, the services prices index is the report's most striking number. ISM identified it as the highest reading since August 2022. The comparable manufacturing index, released two days earlier for the same month, was 71.1% — exactly where it sat in July, unchanged. Two separate surveys of two different halves of the economy are now reporting input-cost pressure in the low seventies at the same time.

Respondent comments collected by ISM name specific causes rather than a general inflation impulse. A respondent in accommodation and food services described conditions as positive while citing tariffs and Middle East conflict as input-cost headwinds. A wholesale trade respondent reported strong electrical distribution demand with copper, aluminum and PVC repricing weekly. A retail trade respondent said a memory shortage was worsening, leaving inventory low and prices high for devices that need memory cards.

The Employment Index Is Not a Payroll Count

The employment index at 47.8% is a diffusion index: it reflects the balance of survey respondents reporting higher versus lower employment at their own firms, not a headcount. A reading below 50 means more respondents reported decreases than increases. It does not translate into a number of jobs, and it does not have to move in the same direction as the Bureau of Labor Statistics payroll survey in a given month.

Steve Miller, CPSM, CSCP, who chairs the ISM Services Business Survey Committee, said economic activity in the services sector continued to expand, and noted that the multiyear highs in business activity and new orders could point to increased employment ahead.

The Manufacturing Contrast

The manufacturing report for the same month moved the other way. The Manufacturing PMI slipped to 54.6% in August from 55.6% in July, with new orders down 3.0 points to 53.7% and employment down 1.6 points to 51.2%. Susan Spence, MBA, who chairs the ISM Manufacturing Business Survey Committee, said the overall economy continued in expansion for the 22nd month in a row, and reported that 42% of respondent comments were positive and 58% negative. Pricing volatility appeared in 57% of the negative comments and the Iran war in 30%.

Taken together, the two reports describe an economy where services demand accelerated in August while factory momentum moderated, and where input costs stayed elevated on both sides. What that means for the September policy meeting is not something either survey answers.