7.4 million openings, 44,000 ADP jobs, and a services employment gauge back below 50
Two other aspects of this report stand out: Employment: Dropped back into contractionary territory at 47.4. Prices Paid: Rose from 67.7 to 70.3.
The weakness in the employment component will sharpen the market's focus on Friday's Jobs Report.
The US services activity index stayed in expansion in July, but the employment component inside it dropped back into contraction. In the same report business activity rose from 55.4 to 59.1 and new orders from 55.1 to 57.2. So this is not a case of activity drying up.
On the headline alone the index sits almost exactly where it did in June. What split was underneath, where employment and prices moved in opposite directions. The two things El-Erian singled out show up in the numbers.
2026-08-05, ISM Services report as distributed on PR Newswire
Why 50 is the line
This index does not measure amounts, it asks about direction. Purchasing managers are asked whether things got better or worse than last month, and the share answering better becomes the index. So 50 means as many firms said better as said worse, and below 50 means more firms said they cut than said they added. An employment reading under 50 says more service firms shrank headcount than grew it. It does not say how many service jobs disappeared.
Below 50 through the spring
- 2026-03
Services employment at 45.2, first contraction of the year
- 2026-04
48.0, a second month of contraction
- 2026-05
47.9, a third month
- 2026-06
Back above 50 after one month
- 2026-08-07
July jobs report
Services employment sat below 50 through the spring, which makes June's bounce look closer to the exception.
ISM Services monthly releases, March to August 2026
The other jobs numbers that landed the same day
ADP, the payroll processor, counted 44,000 private jobs added in July. That is well short of the 65,000 the market was looking for, and June was revised down from 98,000 to 95,000.
ADP: Private sector hiring fell short of expectations last month (Yahoo Finance, 2026-08-05)Job openings for June, published a day earlier, came in at 7.4 million, down from 7.5 million in May. The side posting jobs and the side filling them are cooling together. Meanwhile ADP had pay for people who changed jobs up 7.0 percent on a year earlier, the fastest since August last year, against 4.4 percent for those who stayed put.
Prices went the other way
The services prices paid component reached 71.3 in May, the highest since August 2022. July sits just under that, the second highest of the past year. The component has now pointed to rising prices for 110 months in a row. That is more than nine years without a month of falling service prices.
The question the August 7 jobs report has to take
What the market is measuring now is not whether services are expanding but whether slower hiring has spread beyond services. Consensus for Friday's report is 80,000 nonfarm jobs added and an unemployment rate holding at 4.2 percent. Come in near that and the services employment dip stays a wobble in survey responses; come in well under and the combination of rising prices with cooling employment is confirmed. The second one is the combination the Federal Reserve finds hardest to handle, because prices argue against cutting rates while employment argues for it.
- The US ISM Services index stayed in expansion in July, its 25th month in a row.
- On the surface that says the service sector is holding up. Business activity and new orders both improved on June.
- But in the same report the employment component fell back below 50 and prices paid came in at the second highest reading of the past year after May. Fewer people are being hired while prices are being pushed up.
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Sources
- Original Mohamed El-Erian (@elerianm), 2026-08-05
- Index release ISM Services PMI report for July 2026, full text distributed via PR Newswire, checked 2026-08-05
- Coverage Reuters, 2026-08-05
- Private payrolls ADP National Employment Report for July 2026, with Yahoo Finance coverage, 2026-08-05
- Job openings US Bureau of Labor Statistics JOLTS for June 2026, released 2026-08-04
Checked 2026-08-05. Index values are the seasonally adjusted figures ISM published that day, and consensus numbers are as collected just before release. The August 7 jobs report figures are pre release expectations.