ISM Services PMI Expectations – 4/9/2025

US ISM Services PMI (Aug) — Preview & Market Framing

Thursday’s ISM Services PMI  release (04 Sep, 15:00 UK / 10:00 ET) lands into a market already parsing mixed signals – manufacturing still sub-50, labor demand has been gradually cooling, and services-led inflation has been proving sticky. Consensus looks for a modest return to expansion near 51.0 (prior 50.1); our base case sits just above the 50 line at 50.7–51.0.

What will matter most isn’t the headline alone but the composition:

• Business Activity and New Orders gauge near-term growth momentum; sustained prints above 52 would further support a soft-landing narrative.
• Employment has been the weak link; another sub-50 outcome would reinforce gradual labor-market loosening even if activity stabilizes.
• Prices Paid remains the policy-sensitive piece; any cooling toward the mid-60s would help the “disinflation in services” story, while a renewed push higher would re-ignite concern about tariff and wage pass-through.

In market terms, a headline above 51 with firmer New Orders and an improving Employment index would likely lift front-end yields and support the Dollar (USD), especially versus low-beta FX. Conversely, below 50 with soft Employment and sticky Prices would read stagflation-ish, favoring a bull-steepening in Treasuries’ (USTs) and a softer Dollar (USD) on growth worries. We anchor our tactical view around these sub-indexes and their implications for services inflation into the September FOMC.

What the Street expects

• Most calendars show consensus ~50.5–51.0 (prev 50.1). The forecast 50.7 sits right in the middle.
• ISM Services is released at 10:00 ET on the third business day each month.

Our call (headline & key sub-indexes)

• ISM Services PMI: 50.7–51.0 (slightly above the 50.5–51.0 consensus midpoint; modest expansion).
• Business Activity: 53 (Jul: 52.6).
• New Orders: 51 (Jul: 50.3).
• Employment: 47–48 (still contracting; Jul: 46.4).
• Prices Paid: 68–70 (very elevated; Jul: 69.9).

Why we’re a touch above consensus on the headline

• S&P Global points to solid services momentum: US Services PMI = 55.4 in Aug (final). ISM typically runs a few points lower than S&P, but the direction rhymes → argues for a small uptick from July.
• July ISM Services internals were mixed, notably Business Activity 52.6 and New Orders 50.3, suggesting underlying growth that was masked by weak Employment (46.4). If orders/activity firm a bit, the composite can tick above 50 even with employment still sub 50.
• Manufacturing read-across: Tuesday’s ISM Manufacturing = 48.7 showed new orders back in expansion (51.4) and prices still high (63.7) a combo consistent with “demand stabilizing, cost pressure sticky,” which normally maps to services holding near/just above 50.

Why Employment likely stays below 50

• Labor cooling signals: the Conference Board “jobs plentiful minus hard to get” gap narrowed again in August; insured unemployment ~1.95m remains elevated vs early-year levels. That’s consistent with services hiring restraint even if top-line activity inches up.

Why Prices likely stay hot

• ISM Services Prices jumped to 69.9 in July and manufacturing input prices remained lofty in August (63.7). Tariff-linked cost pass-through risk is still there, so I’d expect only marginal relief at best.

What would move markets most at 15:00 UK

• Headline ≥51.5 with New Orders ≥52 & Employment ≥49: supports a “soft-landing not dead” narrative → front-end USTs up / USD firmer (especially vs JPY).
• Headline ≤50 with Employment ≤46 & Prices ≥69: stagflation-ish mix (weak growth, sticky prices) → curve bull-steepening / USD mixed (risk-off tilt).
• Prices Paid ≤65 with headline ~51: “better growth, easing inflation” → USTs bid / USD softer, equities like it.

Cross-checks to watch before the release

• ADP (Thu 08:15 ET) could sway sentiment on the Services Employment component. ADP Media Center
• Weekly claims (Thu 08:30 ET): last print 229k / continuing 1.95m—a further rise in continuing claims would keep a lid on ISM-Services Employment. DOL

Receipts / prior detail

• July ISM Services PMI: headline 50.1; Business Activity 52.6, New Orders 50.3, Employment 46.4, Prices 69.9. Institute for Supply Management
• Consensus snapshots for Aug: ~50.5–51.0 (MarketWatch & Investing.com calendars).
• S&P Global US Services (Aug): 55.4 (final).
• ISM Manufacturing (Aug): headline 48.7; New Orders 51.4; cost pressure elevated.

I’m looking for ISM Services ~50.7–51.0 (just above consensus), employment still sub-50, and prices uncomfortably high. That mix keeps the Fed focused on inflation progress in services while acknowledging a gradually cooling labor market.

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