ISM Services PMI at 55.4% in August, a sharp 1.3-point increase from 54.1% in July. 26th consecutive month of expansion. Business Activity jumps to 61.7% (+2.6 points), New Orders to 60.9% (+3.7 points), the highest level since February 2023.

Unlike the prior day's manufacturing report which slowed across the board except supplier deliveries, services accelerate sharply on activity and orders while continuing to shed jobs. Employment Index at 47.8%, second consecutive month of contraction, below its 12-month average (48.8%). A classic late-cycle signal, businesses ramping up activity without hiring, which could either foreshadow catch-up hiring or signal mounting pressure on existing productivity.

Prices Index at 72.6%, the highest since August 2022, the 5th time in 6 months above 70%. 111th consecutive month of rising prices paid. Combined with the prior day's manufacturing ISM stuck at 71.1%, cost pressure remains the most consistent macro factor across this analysis series, fueled by tariffs and the Middle East conflict explicitly cited by respondents.

Tariffs and the Middle East conflict return as the most cited factors impacting supply chains, confirming the pattern already documented across the France PMI, US manufacturing ISM, Australia GDP, RBNZ, and BoC releases. Fuel remains up for the 7th consecutive month, GPUs and steel added to the shortage list, a sign AI-infrastructure tensions are now compounding classic geopolitical strain.

Slight improvement on employment, the share of companies cutting staff fell from 19% to 17.1%. The release explicitly notes that record-level Business Activity and New Orders could signal a shift toward increased services hiring. Backlog of Orders at its highest since February 2026 reinforces this read, part of the backlog is attributed to understaffing rather than lack of demand.

An overall solid print for the US economy (composite near 55%, consistent with 2.3% annualized GDP growth per the historical ISM/GDP relationship), which contrasts with the slowdown suggested by ADP and this week's claims. DXY: this print could partially offset the labor-market-slowdown narrative built by ADP and claims, reintroducing uncertainty about the Fed's path ahead of Friday's NFP. The combination of elevated prices (72.6%) and strong activity leans hawkish for the Fed, consistent with Warsh's Jackson Hole tone. The market will need to weigh this strong services signal against the weaker employment signals from prior days.

The divergence between strong activity and contracting employment is the most important thing to watch, it's not necessarily a straightforwardly bullish dollar signal. If activity growth doesn't translate into hiring soon, it could indicate an economy running on margin rather than healthy expansion, with the risk that price pressure (already at a 2022 high) further complicates the Fed's balancing act between supporting employment and containing inflation.

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