The U.S. service sector showed signs of renewed momentum in August, even as hiring stayed weak, highlighting the growing pressure on the labor market.
The Institute for Supply Management (ISM) reported Thursday that its services PMI rose to 52.0 last month, up from 50.1 in July and above the 51.0 economists had expected. Any reading above 50 indicates expansion. Since services make up more than two-thirds of the U.S. economy, the rebound suggests demand is holding up despite economic headwinds.
Still, job growth within the sector remains a concern. ISM’s employment index held nearly flat at 46.5—its third consecutive month in contraction territory. While these figures don’t always line up perfectly with the government’s official payroll data, they echo other signs that hiring is losing steam.
For the first time since the pandemic, government data showed in July that unemployed Americans outnumbered available jobs. Economists surveyed by Reuters expect Friday’s jobs report to show nonfarm payrolls rising by about 75,000 in August, only slightly better than July’s 73,000 gain. That would bring the three-month hiring average to just 35,000 jobs, far below the 123,000 seen during the same stretch last year. The unemployment rate is expected to edge up to 4.3% from 4.2%.
Many analysts point to former President Donald Trump’s steep tariffs as a key factor weighing on the labor market. The duties have pushed U.S. tariff levels to highs not seen since the 1930s, raising costs and fueling inflation concerns.
With inflation still running hot, the Federal Reserve has kept interest rates steady at 4.25%–4.50% since December. Fed Chair Jerome Powell recently hinted at the possibility of a rate cut when policymakers meet September 16–17 but cautioned that price pressures remain a major risk.
Meanwhile, ISM’s new orders index climbed to 56.0 from 50.3, signaling stronger demand. Prices, however, remain elevated. ISM’s measure of prices paid slipped only slightly to 69.2 from 69.9—the highest level since late 2022—suggesting inflationary pressures are far from easing. Photo by A.bayarmagnai, Wikimedia commons.