The U.S. services sector continued to expand in August, with the ISM Services Index registering 55.4%. This marks the 26th consecutive month in expansion territory, where any reading above 50 reflects growth and any reading below 50 represents contraction. The Business Activity Index also remained in expansion, rising 2.6 percentage points to 61.7% from July's reading of 59.1%, according to Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management Services Business Survey Committee.
Several underlying components showed strength. The New Orders Index stayed in expansion at 60.9%, up 3.7 percentage points from 57.2% in July, and has now expanded for 15 consecutive months. The Inventories Index expanded for the seventh month in a row, registering 56.7%, a 5.3 percentage point increase from 51.4% in July. The Backlog of Orders Index registered 55.6%, a 4.7 percentage point increase from 50.9% in July, marking its longest continuous growth since a 26-month stretch that ended in February 2023. Services Inventory Sentiment remained in expansion, or "too high," territory for the 40th consecutive month at 54.1%.
The expansion suggests continued resilience in services demand, but the report also highlighted affordability pressures. A construction respondent said the bond market pushed 30-year mortgage rates up to 6.67 percent, reducing affordability and moving prospective buyers back to the sidelines. The respondent added that the new-build housing market continues to slow as the selling season closes and the school year begins, with rate buydowns and discounts becoming the norm rather than a tool to drive traffic. Other respondents cited higher theater attendance and large capital investments in transmission and generation services as sources of increased business activity.
What remains unknown is whether the services expansion can be sustained if mortgage rates and broader financing costs stay elevated. The single-source report does not provide forward-looking guidance from the ISM committee beyond the August readings, and it does not break down performance by service subsector beyond the anecdotal comments. The durability of new orders, inventories, and backlog growth will depend on whether consumer demand and capital investment hold up in coming months.