U.S. ISM Services Index (August 2025)

ISM services expansion improves in August

• The ISM Services index rose a respectable 1.9 points to 52.0 in August, coming in above the market consensus forecast for only a modest increase. The number of industries reporting growth in August improved to 12 out of 18, compared to 11 in the month prior. 
• The increase in the headline measure was driven by a 5.7-point gain in new orders (to 56.0). That said, export orders and the backlog of orders continued to trend lower. 
• A notable 2.4-point improvement in business activity (to 55.0) also helped prop up the headline measure. Gains in other subcomponents were more muted, with the employment index rising only 0.1 points to 46.5 and remaining in contractionary territory for the third consecutive month. 
• The supplier deliveries index gave back the previous month's gain, falling 0.7 points to 50.3. The prices paid index also fell 0.7 points but remained elevated at 69.2, which is among the highest levels since late 2022.

Key Implications

• The improvement in today’s ISM report indicates that activity in the services sector expanded at a slightly better pace in August compared to July, with the headline measure adding a bit more cushion above the 50-point expansionary threshold. The surge in new orders and the improvement in business activity are encouraging. Still, the report wasn't without blemishes, with an employment index that remained in contractionary territory for the third month in a row being the main fly in the ointment. 
• With the Fed now putting more emphasis on softening labor market conditions, the subdued performance of the employment subcomponent in today's ISM services report lines up with a host of other data favoring a rate cut at next month's FOMC meeting. This morning's ADP report, which indicated that private sector hiring slowed significantly in August, also sings to the same tune. Nonetheless, in judging the health of the labor market, the Fed's attention will be heavily focused on this Friday’s August payrolls report. 

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