Last updated: September 7, 2026
The August ISM Services report, released September 3, showed the service sector expanding for a 26th straight month, with business activity and new orders at multiyear highs. It also showed input prices at their highest level since August 2022 and an employment index still below the line that separates growth from contraction. Service businesses are being asked to deliver more, with fewer people, at higher cost.
The short answer
The ISM Services PMI rose to 55.4 in August 2026 from 54.1 in July. New orders jumped to 60.9 and business activity to 61.7, both multiyear highs. But the Prices Index climbed to 72.6 — above 70 for the fifth time in six months — while the Employment Index stayed in contraction at 47.8.
What happened
Every demand-side component in the report improved, several sharply. Backlog of orders rose 4.7 points, inventories 5.3, imports 4.5, and new export orders 4.3. The one index that did not join the party was employment.
| Index | August | July | Change |
|---|---|---|---|
| Services PMI | 55.4 | 54.1 | +1.3 |
| Business Activity | 61.7 | 59.1 | +2.6 |
| New Orders | 60.9 | 57.2 | +3.7 |
| Prices | 72.6 | 70.3 | +2.3 |
| Employment | 47.8 | 47.4 | +0.4 |
| Backlog of Orders | 55.6 | 50.9 | +4.7 |
| Inventories | 56.7 | 51.4 | +5.3 |
| New Export Orders | 56.3 | 52.0 | +4.3 |
| Imports | 56.3 | 51.8 | +4.5 |
| Supplier Deliveries | 51.3 | 52.8 | −1.5 |
Twelve industries reported growth, including accommodation and food services, retail trade, wholesale trade, transportation and warehousing, and professional services. Five contracted: agriculture, construction, management of companies and support services, finance and insurance, and health care and social assistance.
“The Prices Index exceeded 70 percent for the fifth time in six months, marking the highest level since August 2022.” — Steve Miller, CPSM, CSCP, Chair of the ISM Services Business Survey Committee
Respondents named tariffs and the Middle East conflict as the most-cited issues. One professional services respondent reported that tariffs “keep landed costs elevated, forcing constant recalculation and margin pressure.” A retail respondent flagged a worsening memory shortage.
Why it matters
Read the three numbers together and the shape of the problem is clear. Orders at 60.9 mean the work is there. Prices at 72.6 mean it costs more to do. Employment at 47.8 means service firms are not adding the people to do it — for a second straight month of outright contraction in that index.
That combination is a margin squeeze wearing a growth costume. Revenue goes up. So does cost of delivery. And the gap gets absorbed by the staff you already have, which shows up later as overtime, turnover, and slipped delivery dates rather than as a line on this month’s P&L.
It also confirms the pattern we flagged in the August manufacturing report, where prices held at 71.1 while new orders fell three points. Both sides of the economy are now printing input-cost readings above 70. That is no longer a factory story.
What this means for service business owners
- Reprice on September data, not on last year’s cost base. A prices index above 70 for five of six months means your input costs have moved materially since your rate card was set. Pull your actual cost per delivered hour or per job for August and compare it to the assumption inside your pricing.
- Separate volume variance from price variance in the books. If revenue rises because you charged more and because you did more, those are two different businesses to manage. Booking them together hides which one is actually earning.
- Treat the backlog jump as a staffing warning. Backlog rose 4.7 points while employment stayed in contraction. Work is queuing up behind a headcount that is not growing. Look at your own backlog against 60 days ago before you accept the next large engagement.
- Model the overtime. If you are meeting rising demand without adding people, the cost is landing in overtime and burnout. Overtime at time-and-a-half is often more expensive than the hire you have been deferring — run that comparison with real numbers rather than assuming the hire is the pricier option.
- If you are in one of the five contracting industries — construction, finance and insurance, health care, agriculture, or management and support services — the aggregate optimism in this report is not yours. Plan from your own pipeline.
Frequently asked questions
What was the ISM Services PMI for August 2026?
55.4, up 1.3 points from July’s 54.1, marking a 26th consecutive month of expansion in the service sector.
What does a Prices Index of 72.6 mean?
Readings above 50 mean prices paid by service firms are rising; 72.6 means they are rising broadly and quickly. It is the highest reading since August 2022 and the fifth time in six months the index has topped 70.
Why is the ISM employment index below 50 if the economy is adding jobs?
The ISM Employment Index at 47.8 measures whether surveyed service firms are increasing or decreasing headcount, and more reported decreases than increases. It is a diffusion index of firm-level direction, not a count of jobs, so it can contract while national payrolls rise.
Which service industries are contracting?
Five in August: agriculture, forestry, fishing and hunting; construction; management of companies and support services; finance and insurance; and health care and social assistance.
What is driving service-sector cost increases?
Survey respondents most often cited tariffs and the Middle East conflict, with elevated landed costs and component shortages named specifically.
The bottom line
Strong demand with contracting employment and four-year-high input prices is the setup where a business grows its revenue and shrinks its margin at the same time. The September ISM report lands in early October. Between now and then, the useful work is repricing off real August costs and finding out whether your backlog is a pipeline or a queue.
Sources: August 2026 ISM Services PMI Report; InvestingLive.
