US August ISM Services PMI Rises to 55.4%, Expanding for 26 Consecutive Months

[Mexico City = Shim Young-jae, Correspondent] The US services sector continued its expansion in August. According to the Institute for Supply Management (ISM), the Services Purchasing Managers' Index (PMI) for August rose to 55.4%, an increase of 1.3 percentage points from July. The Services PMI has remained above the baseline of 50% for 26 consecutive months.

Both the business activity and new orders indices exceeded 60%, marking their highest levels in several years. However, the employment index remained in contraction territory at 47.8% for the second consecutive month. The prices index rose to 72.6%, indicating continued cost pressures in the services sector.

The ISM announced on the 3rd (local time) that the August Services PMI recorded 55.4%, up 1.3 percentage points from July's 54.1%. The Services PMI has exceeded 50% for 26 consecutive months, indicating ongoing expansion.

According to Steve Miller, Chair of the ISM Services Business Survey Committee, the business activity index rose from 59.1% in July to 61.7% in August, an increase of 2.6 percentage points. The new orders index also increased from 57.2% to 60.9%, a rise of 3.7 percentage points.

The business activity index of 61.7% is the highest level since November 2022, when it was 62.7%. The new orders index of 60.9% is also the highest since February 2023, when it was 61%.

Improvement in Business Activity and New Orders... Employment at 47.8%

The employment index rose to 47.8% in August, up 0.4 percentage points from July's 47.4%. However, it remains below the baseline of 50%, indicating contraction for the second consecutive month.

The average employment index over the past 12 months is 48.8%. The employment index has been below 50% for 13 of the last 18 months. However, the proportion of companies reporting reductions in workforce decreased from 19% in July to 17.1% in August.

Chair Miller explained that the rise in the business activity and new orders indices to multi-year highs could indicate potential increases in employment in the services sector in the future.

The backlog of orders index also rose from 50.9% in July to 55.6% in August, an increase of 4.7 percentage points. This marks seven consecutive months of expansion. The August figure is the highest since February of this year, when it was 55.9%.

According to ISM, some respondents indicated that the increase in backlog was due to low staffing levels in their companies.

The new export orders index rose from 52% to 56.3%, an increase of 4.3 percentage points, remaining above 50% for seven consecutive months.

The imports index rose from 51.8% in July to 56.3% in August, an increase of 4.5 percentage points, continuing its expansion for the second consecutive month.

The inventory index rose from 51.4% to 56.7%, an increase of 5.3 percentage points. The inventory sentiment index rose from 52.5% to 54.1%, marking 40 consecutive months of expansion.

Prices Index at 72.6%... Fifth Time Above 70% in Six Months

Price pressures in the services sector have intensified. According to ISM, the prices index rose to 72.6% in August, up 2.3 percentage points from July's 70.3%. This marks the fifth time in the last six months that it has exceeded 70%.

The prices index has remained above 60% for 21 consecutive months. The average over the past 12 months is 68.5%, up 0.4 percentage points from July's 68.1%. This is the highest level since April 2023 based on the 12-month average.

The August prices index of 72.6% is also the highest since August 2022.

In July, six raw materials were reported to have decreased in price, but in August, only fuel was reported to have decreased. Fuel has also been reported as a price-increasing item for seven consecutive months.

Prices for oil-related products, diesel, and gasoline also rose again in August.

Other items that saw price increases include computers and related products, copper and copper-based products, food, transportation, labor, memory products, software licenses, and steel products.

Items experiencing supply shortages include graphics processing units (GPUs), labor, memory components, steel, and cables.

Supplier Deliveries Index at 51.3%... Declining for Four Consecutive Months

The supplier deliveries index fell to 51.3% in August, down 1.5 percentage points from July's 52.8%. This index has remained above 50% for 21 consecutive months. A reading above 50% indicates that delivery speeds have slowed, contrary to other ISM indices.

The August figure marks four consecutive months of decline and is 2.4 percentage points lower than the 12-month average of 53.7%.

ISM explained that while the speed of supplier deliveries continues to slow, the degree of slowdown has eased in recent months.

Growth in 12 Industries... Contraction in 5 Industries

In August, 12 service industries reported growth, one less than in July. The number of industries reporting contraction increased by one to five.

Industries reporting growth include mining, real estate and rental and leasing, accommodation and food services, wholesale, arts, entertainment and recreation, educational services, retail, information, professional, scientific and technical services, utilities, transportation and warehousing, and public administration.

Industries reporting contraction include agriculture, forestry, fishing and hunting, construction, business management and support services, finance and insurance, and healthcare and social assistance.

The August Services PMI of 55.4% is 1.7 percentage points higher than the 12-month average of 53.7%. The 12-month average also rose from 53.4% in July to 53.7% in August, an increase of 0.3 percentage points. The 12-month average Services PMI has risen for eight consecutive months.

Tariffs and Middle East Conflicts Again Major Supply Chain Variables

According to ISM, respondents in the August survey cited tariffs and Middle East conflicts as significant factors affecting supply chains.

Accommodation and food service companies reported that while overall business conditions are positive, changes in the US government's tariff policy and Middle East conflicts are leading to increased input cost pressures for suppliers and businesses.

Respondents in the construction sector noted that movements in the bond market have pushed the 30-year fixed mortgage rate in the US up to 6.67%, reducing housing affordability. The new housing market is also reported to be continuing to slow ahead of the end of the selling season and the start of the new school year.

A respondent in the educational services sector reported that the Iran conflict and oil supply pressures have led to increased fuel costs. However, they assessed that the local economy and housing market remain robust.

In the finance and insurance sector, responses indicated that rising healthcare costs, regulatory complexities, and pressures for insurance reimbursements are creating a cautious purchasing environment.

In the retail sector, ongoing memory shortages have worsened, with reports of low inventory and high prices for devices using memory cards.

In the wholesale sector, responses indicated that prices for raw material-based products such as copper, aluminum, and polyvinyl chloride are rising or adjusting weekly. Geopolitical issues such as tariffs continue to impact prices.

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