US Service Sector Expands in July Despite Rising Costs

The Institute for Supply Management reported that the US service sector expanded at a steady pace in July, with its services index rising to 54.1. Growth was primarily driven by a five-month high in business activity and new orders, supported by resilient consumer demand and economic activity tied to the World Cup.

Despite the expansion, the sector faced significant pressure from rising material and service costs. The prices paid index surged to 70.3 following the collapse of an interim deal between the United States and Iran. These escalating costs squeezed profit margins, resulting in the sharpest contraction in headcount since March as companies reduced hiring.

Thirteen industries experienced growth, including retail trade, construction, and transportation and warehousing, while four sectors contracted. Steve Miller, chair of the ISM Services Business Survey Committee, noted that the US services economy remains resilient overall.