July brought the 25th straight month of US services expansion, but the details underneath tell a far messier story. The ISM Services PMI clocked 54.1%, barely nudging above June's 54.0% and falling short of the 54.5% consensus. Anything above 50 means growth, and two years of unbroken expansion is solid.
But then you dig deeper. Business activity jumped 3.7 points to 59.1%, and new orders climbed to 57.2%. Employment, though, dropped to 47.4%, slipping into contraction for the first time in months. The real alarm bell is the Prices Paid Index, which surged to 70.3 from 67.7.
That jump matters because it signals businesses are paying sharply more for inputs. Tariffs and oil prices drove much of the increase. When companies absorb those costs long enough, they start passing them downstream to customers.
Fed officials will be watching this closely. Inflation pressures in services have been cooling, and this reversal complicates the case for aggressive rate cuts. Traders recalibrated crypto positions immediately after the data dropped, with Bitcoin swinging on revised expectations about when and how much the central bank might ease.
ISM Chair Steve Miller flagged ongoing tariff discussions and Middle East tensions as headwinds, though he credited major events like the FIFA World Cup with boosting activity in hospitality and related services.
The contradiction is stark: strong demand, rising costs, and shrinking payrolls. That's the kind of signal that keeps markets guessing.
This material is informational only and does not constitute financial advice. Market data and economic indicators are subject to revision.
