U.S. Services Sector Expansion Accelerates to 55.4 in August
By TopHolding Editorial · Wednesday, September 2, 2026 at 8:00 PM
The U.S. services sector expanded at an accelerated pace in August, with the ISM Services Index climbing to 55.4, surpassing expectations and marking the strongest growth since late 2022. This uptick was driven by robust increases in business activity and new orders, despite persistent price pressures and continued softness in hiring.
The U.S. services sector demonstrated a significant acceleration in August, as the ISM Services Index rose to 55.4, exceeding the consensus forecast of 54.1. This reading, where numbers above 50 signal expansion, indicates a pick-up in economic activity within the sector, reaching its highest level since late 2022.
The improvement was largely propelled by a strengthening in key measures of activity. The Business Activity Index advanced to 61.7 from 59.1 in July, while the New Orders Index increased to 60.9 from 57.2. Both forward-looking indices have shown expansion for the past twelve consecutive months, with new orders reaching a three-year high. This broad-based growth was evident across the sector, with twelve out of eighteen major service industries reporting expansion, while five noted contraction and one remained unchanged.
Despite the overall positive trend in activity, the sector continues to grapple with elevated price pressures and challenges in hiring. The Prices Paid Index surged to 72.6 in August from 70.3 in July, marking the fifth time in the last six months that this index has breached 70.0. While this remains below the peak levels observed during the COVID-related supply-chain disruptions, it highlights ongoing inflationary forces. Concurrently, the Employment Index remained in contraction territory, inching up slightly to 47.8 from 47.4, reflecting persistent difficulties in consistent hiring over the past three years.
Analysts note that service activity has sustained a relatively rapid pace of expansion throughout 2026, with the services index remaining above 53.0 for nine consecutive months—the longest such streak since 2022. This resilience comes even amid geopolitical tensions in the Middle East, which have impacted energy prices, and an evolving tariff landscape. However, while robust business activity and new orders suggest underlying economic strength, the soft confidence in the near-term economic outlook, partly linked to lingering supply-chain concerns, continues to weigh on hiring decisions. Looking ahead, the money supply, which is up 5.4% over the past year compared to a 6.0% pre-COVID trend, suggests that inflationary pressures could ease more quickly than anticipated once current geopolitical conflicts are resolved.
In related economic news, light vehicle sales in August reached an annualized rate of 16.8 million units, representing a 2.6% increase from July and a 4.3% rise year-over-year.
Key terms:
1. ISM Services Index: A monthly economic indicator based on surveys of purchasing and supply executives in the services sector, with readings above 50 indicating economic expansion and below 50 indicating contraction.
2. Business Activity Index: A component of the ISM Services Index that measures the rate of activity in services companies, reflecting changes in production, sales, and general business operations.
3. New Orders Index: A component of the ISM Services Index that gauges the level of new orders received by services companies, serving as a forward-looking indicator of future business activity and demand.
Source: This article is adapted from First Trust Portfolios' Data Watch commentary on this data release. The original is available at ftportfolios.com.