U.S. services sector activity accelerated in August, with the Institute for Supply Management’s Non-Manufacturing Purchasing Managers’ Index rising to 55.4 from 54.1 in July. The reading exceeded economist expectations of 54.2, according to a Reuters poll, and marked the strongest expansion since February 2023.
New orders, a key driver of the uptick, surged to 60.9 from 57.2, the highest since early 2023. The supplier deliveries measure eased to 51.3 from 52.8, indicating 21 consecutive months of slowing delivery times. Input prices paid climbed to 72.6 from 70.3, reflecting persistent cost pressures in the sector. Employment remained little changed at 47.8, signaling ongoing labor market softness.
The Federal Reserve’s benchmark interest rate currently stands in a range of 3.50% to 3.75%, with policymakers scheduled to convene on September 15–16. Financial markets have priced in a 64% probability of a 25-basis-point rate hike at that meeting, per CME Group’s FedWatch tool. Fed Chairman Kevin Warsh last week warned that the central bank would "have work to do" if inflation fails to sustainably return to the 2% target.
Economists surveyed by Reuters anticipate the Labor Department will report a rebound of 56,000 nonfarm payroll jobs for August, following a surprise decline of 23,000 in July. The labor market’s trajectory remains a critical factor for monetary policy decisions, particularly amid shifting supply chain dynamics and geopolitical tensions.
Supply chain constraints, initially exacerbated by import tariffs and later by the ongoing U.S.–Israeli conflict with Iran, have contributed to input cost pressures. Additionally, the recent termination of Temporary Protected Status for hundreds of thousands of Haitians has raised concerns about potential labor force disruptions, though its direct impact on August data remains unclear.
