The Econoday service sector activity index (ESSAI)* for July is 5.6, turning positive for the first time since 6.7 in December 2024, up from minus 3.3 in June and minus 2.1 in May. Five of the six Fed district bank surveys for the service sector show an increase in July. The rise in two (Kansas City and Chicago) were modest while three had a substantial jump from negative to positive (New York, Philadelphia, and Dallas). Only one index was down and in negative territory (Richmond). It is possible that activity in the service sector responded to the declines in gasoline prices and hope that inflation pressures were on the wane again.
Input prices in July show signs of moderation that may be erased in August now that energy prices are rising again. The Econoday service sector prices paid index (ESSPPI)# dips to 35.7 in July from 38.3 in June and is just above the 35.2 in March at the start of the conflict with Iran.
The Econoday service sector employment index (ESSEI)## gains to 5.5 in July after 4.7 in June. July hiring in the service sector could reflect some late hiring in industries related to travel and the early start of some school years.
The ESSAI has good correlations** with the major national indexes for activity in the service sector.
The S&P services purchasing managers index had a flash reading of 53.6 for July, up from the final 51.2 in June. The index generally sees only minor revisions from the flash to the final report. The S&P index is taken later than the regional surveys and is likely the more accurate perception of current conditions for the service sector. The final S&P services purchasing managers index for July is set for release at 9:45 ET on Wednesday, August 5.
The ISM services index was little changed at 54.0 in June from 54.5 in May. Conditions in the service sector have been fairly steady since 54.0 in March in the wake of hostilities in the Middle East. However, it has yet to recover to the 56.1 in February 2026. As the conflict remains unresolved, economic uncertainty will by a major factor for business activity, as well concerns about inflation. The ISM services index for July is set for release at 10:00 ET on Wednesday, August 5.
*The ESSAI is an average of seasonally adjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The districts correspond with about 48 percent of the US labor force. An index above 0 indicates expanding activity and below 0 indicates contracting activity.
**S&P PMI for services index correlation 0.754, ISM services index 0.747.
#The ESSPI is an average of unadjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The ESSPI has a correlation of 0.842 with the ISM services prices paid index.
##The ESSEI is an average of seasonally adjusted employment indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The index has a correlation of 0.757 with the ISM services index.
