The US Institute for Supply Management’s services index came in at 54.1 in July, below the 54.5 expected and down slightly from 54.0 previously.

Within the report, the prices paid index rose to 70.3 from 67.7, while new orders increased to 57.2 from 55.1. Business activity also improved, climbing to 59.1 from 55.4. Employment, however, weakened sharply to 47.4 from 51.2, slipping back below the 50 threshold.

The latest reading followed the S&P Global final PMI for July, which was released shortly before the ISM report and rose to 54.6 from 53.6, an 8-month high. While the ISM headline missed expectations, the report showed some strength in business activity and new orders. The main weakness was employment, which fell back below 50 by a wide margin.

That drop may reflect temporary hiring related to the World Cup and USA 250 celebrations, but it is still notable to see softer employment alongside rising inflation pressures. For markets and policymakers, the combination matters because services make up the bulk of US economic activity, so a weaker labor component can carry more weight when it appears alongside firmer prices. The combination also raises the stakes for Friday’s non-farm payrolls report and adds downside risks. Today’s ADP employment number was also weak.

Comments included in the report pointed to a mixed picture across industries:

“Overall volume of business is slightly down for the year.” [Agriculture, Forestry, Fishing & Hunting]

“Sales continue to slide despite increased discounts. Mounting cost pressures from all fronts.” [Construction]

“Economic conditions remain stable. Banking activity continues to be supported by healthy commercial client demand, though businesses remain cautious amid interest rate and inflation uncertainty. Overall outlook remains positive for both the banking industry and my company.” [Finance & Insurance]

“In the tertiary care segment of hospital operations, patient volumes, revenue and activity across the board are up, and given the economic climate, this was an unexpected result. Supply chains are operating as expected: There are few, if any, impactful back orders, deliveries are consistent and fill rates are up. Employment is still in high demand, yet our institution appears to be faring well as full-time employee positions are filling without excessive recruitment. Forecast remains above average.” [Health Care & Social Assistance]

“Business is starting to pick up especially with smaller firms. Just hope it keeps improving.” [Management of Companies & Support Services]

“Uncertainty on how the Iran conflict will impact the price of oil, as well as the knock-on effect to construction and other materials. The city has several capital projects pending and ongoing, which will be impacted.” [Public Administration]

“Network gear supply (internet access points and switches) for store equipment set up on four- to six-month lead times; needing to place large order in anticipation of new store openings in order to have sufficient network gear to run the store.” [Retail Trade]

“Conditions are largely unchanged from last month. The exception is pricing, which continues to rise, driven mainly by fuel and labor costs. Demand remains stable.” [Transportation & Warehousing]

“Electric utility materials continue to be in high demand, causing competition among utilities for production slots. Furthermore, more suppliers are requiring progress payments or a down payment on goods as part of PO agreements.” [Utilities]

“Business is more robust than expected, considering some of the economic headwinds still plaguing the industry. Lumber supply is tighter, and freight rates and availability are challenges. Many of our builders are pushing back hard on price increases. However, the outlook is favorable for the remainder of 2026.” [Wholesale Trade]