The Zhitong Finance App learned that the US service industry continued to expand in July, and commercial activity and new orders accelerated markedly, but employment indicators contracted again, and investment price pressure further heated up, indicating that the US service industry as a whole is still resilient, but there is still uncertainty about corporate employment and inflation prospects.
According to data released by the American Institute for Supply Management (ISM) on Wednesday, the ISM service sector PMI recorded 54.1% in July, a slight increase of 0.1 percentage points from 54.0% in June. It has been in the expansion range for the 25th month in a row, and higher than the average of 53.4% over the past 12 months. Generally speaking, an index above 50% represents an expansion of service sector activity.
According to ISM, a service sector PMI above 48.1% for a long time usually means that the overall US economy continues to grow. According to historical relationship estimates, the service sector PMI of 54.1% in July corresponds to an annualized increase in US real gross domestic product (GDP) of about 1.9%, indicating that the overall US economy has been expanding for the 74th consecutive month.
Looking at the main sub-items, there has been a marked improvement in service sector demand and business activity. The business activity index rose to 59.1% in July, up 3.7 percentage points from 55.4% in June, the second highest level since May 2024, and higher than the 12-month average of 55.6%.
The new orders index rose to 57.2%, up 2.1 percentage points from June. It has been in the expansion range for 14 consecutive months, reflecting strong demand for corporate orders. Some of the companies interviewed mentioned that the budget in place for the new fiscal year, the launch of large-scale summer projects, and the demand related to the World Cup are driving growth in business activities and new orders.
However, the performance of the job market has weakened markedly. The service sector employment index fell to 47.4% in July, down 3.8 percentage points from 51.2% in June. After a short month of expansion, it fell back into the contraction range and fell to its lowest level since March. The index has been below 50% for 12 of the past 18 months, indicating that service companies are still more cautious in recruitment.
Some companies say they are currently cutting jobs slightly, some of which are related to artificial intelligence (AI) applications; others claim that jobs in the US have declined, while recruitment in low-cost regions such as India has increased.
By industry, a total of 7 industries reported employment growth in July, including utilities, construction, retail trade, transportation and warehousing, wholesale trade, information, and public administration; another 8 industries reported a decline in employment, including mining, finance and insurance, healthcare and social assistance, real estate, education services, and professional, scientific and technological services.
Price pressure has further intensified. The price index rose to 70.3% in July, up 2.6 percentage points from 67.7% in June, breaking 70% for the fourth time in the past 5 months, and rising above 60% for the 20th consecutive month. Its average for the past 12 months rose to 68.1%, the highest level since April 2023.
Prices of materials and services paid by service companies have been rising for 110 consecutive months. A total of 17 industries reported an increase in investment prices in July, and no industry reported a decrease in price. Petroleum-related products, plastics, memory products, technical labor, software licensing and maintenance, transportation, transformers, and switching equipment are all listed as price increases.
ISM pointed out that the recent rise in oil costs is still having an impact on service sector prices. Transportation and storage industry companies say fuel and labor costs are the main reason prices continue to rise; public administration and construction-related companies worry that the conflict in Iran may further drive up construction materials and project costs through oil prices.
On the supply chain side, the supplier delivery index was 52.8%, down 1.6 percentage points from June, and higher than 50% for the 20th consecutive month, which means that supplier delivery speed is still slowing down. However, the index has declined for the third month in a row and fell to its lowest level since December 2025, indicating marginal easing of supply chain delays.
Some companies reported that small suppliers are facing financial pressure, leading to problems such as delayed delivery and missed deliveries; the delivery cycle for some network equipment and electrical conductors is still long. The retail company said that the delivery cycle of network access points and switches for new store construction reached 4 to 6 months, so large orders needed to be placed in advance.
The report shows that the number of products in short supply in July fell from 9 in June to 8, but there are still supply challenges for skilled labor, memory components, electronic components, switchgear, wires and cables, and steel products. Some companies are ensuring supply by extending procurement windows and procuring materials in advance for long-term delivery.
The inventory index rose to 51.4%, a slight increase of 0.2 percentage points from June, and has been in the expansion range for the sixth month in a row. Some companies said that in order to ensure supply safety, they have moderately increased inventory and procured materials with long delivery cycles required for future projects in advance.
However, the inventory sentiment index is 52.5%, which is in the “excessive inventory” range for the 39th month in a row, which means that some companies believe that current inventory is still high compared to actual business demand.
The order backlog index fell to 50.9%, a sharp drop of 4 percentage points from June, but continued to expand for the sixth month in a row. This is the longest cycle of order backlog growth since 26 months of continuous expansion up to February 2023.
The new export orders index rose to 52.0%, up 1.6 percentage points from June, and not less than 50% for the sixth month in a row. Some companies said that demand for subscription services and international orders has increased, and major export markets are still showing some resilience in the face of geopolitical and trade uncertainties.
The import index rose from 49.4% in June to 51.8%, re-entering the expansion range, reversing the three-month continuous downward trend since March. Some companies said that the introduction of new products and the cost advantage of international procurement have led to an increase in imports, while others mentioned that they have received key equipment such as transformers from overseas.
In terms of industry performance, a total of 13 service industries grew in July, down 1 from June, including retail trade, transportation and warehousing, wholesale trade, business management and support services, information, construction, accommodation and catering, public administration, utilities, education services, mining, professional science and technology services, and finance and insurance.
Four industries contracted: agriculture, forestry, fishing and hunting, other services, health care and social assistance, and real estate, leasing and leasing services.
Feedback from the companies surveyed shows that the overall business environment of the US service industry is still quite divided. The financial industry said that commercial customer demand remains healthy, but companies are still cautious about interest rates and inflation prospects; wholesale trading companies say that despite tightening timber supply and challenges in freight and delivery capacity, business performance is still better than expected, and remains optimistic for the rest of 2026.
Meanwhile, construction companies said that even with increased discounts, sales are still declining, and various cost pressures continue to increase. Transportation and storage companies say demand remains stable, but fuel and labor costs continue to drive up prices. Utility companies, on the other hand, said that demand for power equipment is strong, leading companies to compete for production schedules, and more and more suppliers require buyers to pay progress payments or down payments in advance.
Steve Miller, chairman of the ISM Service Industry Research Committee, said that tariffs and the Middle East conflict are still mentioned by the companies surveyed, but the frequency has decreased significantly from before; the World Cup is once again seen as a factor driving the growth of commercial activity and new orders. Overall, the US service economy is still resilient, but mortgage interest rates, the level of inflation, and the price impact brought about by the recent rise in oil costs are still the main concerns facing companies.