The July ISM services index rose to 54.1 from 54.0, remaining comfortably above its 12-month average of 53.4, according to the latest ISM Services PMI Report. Business activity demonstrated strong momentum, rising to 59.1 from 55.4, likely boosted by celebrations and events for the 250th anniversary of US independence and the FIFA World Cup. The Business Activity Index remained in expansion territory with a 3.7 percentage point increase, while New Orders Index registered 57.2, 2.1 percentage points above June's figure of 55.1. The latest reading is consistent with 2.5% GDP growth expectations, suggesting the economy entered the second half of the year on firmer footing than anticipated. However, this strength is expected to cool in August as these temporary factors subside.
The most concerning aspect of the report was the continued weakness in employment metrics. Employment headed back into contraction territory at 47.4 from 51.2, as reported by the ISM Services PMI Report. This follows disappointing ADP employment data of 44,000, well below the 75,000 consensus forecast and down from a revised 95k in June. The NFIB small business hiring numbers have been particularly weak in both May and June, with just 10% net of small businesses looking to make hires - a six-year low. Hiring remained concentrated in the service sector, which added 47k jobs, while goods-producing industries shed 3k, leaving overall employment growth at its weakest pace in recent months. All of July's net employment gains came from the services sector, with education and health services leading at 36,000 new jobs, continuing a longstanding trend of dominating employment growth.
Despite the softer hiring numbers, wage growth remained resilient, signaling that labor market tightness persists in certain sectors. Annual pay growth for workers who stayed with their employers held steady at 4.4%, while wage growth for job changers accelerated to 7.0%, the strongest since August 2025. ADP Chief Economist Nela Richardson noted that stronger pay gains for job changers suggest labor shortages persist in parts of the economy even as employers adjust hiring plans to shifting macroeconomic conditions. This wage resilience despite weaker hiring suggests underlying labor market strength that may not be fully captured in headline employment figures. The divergence highlights the premium employers are willing to pay to attract talent in a market where labor supply remains constrained in certain areas.
Inflation pressures remain elevated with prices paid up at 70.3, above the six-month average of 69.0, according to the ISM Services PMI Report. The increase may be tied to the timing of the survey, which was conducted as the Middle East deal broke down and oil prices spiked higher. Within the index, six categories experienced price falls versus only three in the previous survey. Despite these concerns, potential positive developments from the Middle East regarding a potential reopening of the Strait of Hormuz may help ease these price pressures.
Looking ahead to Friday's jobs report, analysts expect around 70,000 jobs to be added, which is respectable but below the 80,000 consensus prediction, as reported by Investing.com India. Economists surveyed by Dow Jones expect the BLS report to show 83,000 total nonfarm payroll additions in July, up from 57,000 in June, with the unemployment rate forecast to hold at 4.2%. A separate Reuters survey projects private payrolls increased by 78,000 in July after rising 49,000 in June. The Conference Board reported that the share of consumers viewing jobs as "plentiful" dropped in July to the lowest level since February 2021, while the Labor Department's JOLTS report showed job openings fell by 178,000 to 7.359 million in June. Most Federal Reserve officials have expressed confidence in the labor market's overall health and have shifted their policy focus squarely onto inflation, with the central bank holding its benchmark interest rate steady in the 3.50%-3.75% range. However, markets are pricing in the possibility of another rate hike before year-end if inflation data fails to show meaningful improvement.
