U.S. ISM Services Index (July 2025)

ISM services expansion softens in July

• The ISM Services index gave back much of the previous month's gain, falling 0.7 points to 50.1 in July. This was well below the market consensus forecast for an improvement to 51.5. However, the number of industries reporting growth in July was a tick higher at 11 out of 18, compared to 10 in the previous two months.
• Business activity fell 1.6 points to 52.6, while new orders fell by one point to 50.3. The backlog of orders improved but remained in contraction (up 1.9 points to 44.3). 
• The employment index held in contractionary territory, falling 0.8 points to 46.4 – its lowest level since March.
• The supplier deliveries index rose 0.7 points to 51. The July uptick points to a slower supplier delivery performance. The prices paid index also shot up 2.4 points to 69.9 – the highest level since late 2022.

Key Implications

• The pullback in the ISM services index suggests that activity in the services sector expanded at a slower clip in July, with the headline index only a hair above the 50-point contractionary threshold. There were additional blemishes in the report, including an increase in the prices paid index to the highest level since late 2022, and the fact that the employment index held in contractionary territory for the second month in a row – a theme that's in tune with a softened overall employment backdrop. 
• The softer trend in ISM services, coupled with an even worse performance in its manufacturing counterpart, are indicative of slowing U.S. economic activity – a theme that we anticipate will become a more entrenched in the third quarter. While the Fed will have to tread carefully with ongoing signals of an uptick in price pressures ahead, growth-related concerns are likely to dominate and should get the Fed moving when it comes to easing monetary policy, with market odds having increasingly positioned for a September rate cut following the weak July payrolls report. 

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