U.S. ISM Services Index (July 2026)

ISM Services in July shows firming activity, but sticky price pressures 

• The ISM Services PMI edged up to 54.1 in July from 54.0 in June, extending the sector’s expansion streak to 25 months. The headline gain was modest and came in a touch below consensus, but the underlying details were firmer than the headline implied, with both business activity and new orders accelerating. 
• Business activity rose 3.7 points to 59.1, while new orders increased 2.1 points to 57.2. Together, the two readings point to a healthy demand backdrop at the start of the third quarter, even as some respondents continued to flag caution around tariffs, supply-chain costs, and broader policy uncertainty. 
• The labor market signal was less encouraging. The employment index fell 3.8 points to 47.4, moving back into contraction after only one month above 50. Services firms remain reluctant to add to their headcount despite stronger orders. 
• Price pressures reaccelerated, with the prices index rising 2.6 points to 70.3. That marks the fourth reading above 70 in five months and keeps the index above 60 for a 20th straight month.  
• The breadth and persistence of cost pressures remain the key inflationary concern. Respondent comments reference “mounting cost pressures from all fronts” and that “pricing...continues to rise, driven mainly by fuel and labor costs.” 

Key Implications

• The July ISM services report delivered a mixed but still resilient read on the largest segment of the U.S. economy. Demand conditions improved, with activity and new orders both moving higher, while backlogs remained in expansion territory and imports returned to growth. That said, the pullback in employment is a reminder that firms are still managing headcount cautiously, even as demand holds up. 
• The main policy takeaway is that the services sector is not rolling over, but neither is it giving the Fed much comfort on inflation. A stronger demand pulse alongside another rise in prices paid reinforces the risk that services inflation could remain sticky, especially if tariff-related cost pressures continue to filter through supply chains. For the Fed, the report argues for patience: growth is firm enough to avoid urgency on easing, while price pressures remain too elevated to declare victory. 

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.