What the July 2026 ISM Services Report Says About the Economy, Hiring & AI

Speaker A: Welcome to Manufacturing Talk Radio, your Everything Manufacturing podcast with host and veteran manufacturing industry expert Louis Weiss and co host Amy Nicklaus. Make sure to check out our catalog of 800 previous shows on YouTube, Spotify or wherever you're listening. Now let's get into the episode.

Speaker B: Good afternoon everyone. This is Lou Weiss and Amy Nicklaus, uh, uh, at Manufacturing Talk Radio. We're here again with Steve Miller, the committee chair for services at the Institute for Supply Management. And we are going to have the July 2026 report. Things are looking pretty good. Let's get the rundown from Steve.

Speaker A: Very, very good overall number. Uh, this, this month we're a little bit below expectations. I think when I, looking at the commentary before the numbers were released, it was 50, uh, 4.5 with the expectation and our actual number was 54.1. So very close up. 0.0 or 0.01, sorry, 0.1 from last month. Real good strength in business activity. Uh, when you see that, uh, that number, it is the highest number, second highest number we've seen in the last 26 months. And then the new orders number was a good number as well. Uh, not quite as good as the, as the business activity. It was about the fifth highest in the last 26 months. So good numbers. There you see the employment index though down at uh, 47.4. It was only one month in expansion territory and then dropped back into contraction. And then the supplier deliveries is continuing to moderate. It's still indicating slower deliveries than last month overall for the services sector. Um, but it's a lower number meaning fewer industries are seeing that slowness increase than last month.

Speaker C: Okay, great.

Speaker B: In the respondent, uh, uh, comments. Um, it seems as though that there's some conflicting views. It seems as though there's a fair amount of not so happy people. But the numbers indicate otherwise. What do you contribute that to?

Speaker A: Well, a number of 54 means 54% of the industries are feeling good. Um, uh, industry participants are feeling good and it's a blend within each industry. And then 46% are saying, yeah, you know, not as good, not as good as I'd like it to be. So um, that to me is explanation uh, of the mix. And what's great is we get commentary that shows um, those that are growing and those that are shrinking within each of the, of the indexes. So we get a sense for um, for example in employment we're seeing shrinking, but the shrinking is a result of people not backfilling, attrition, uh, rather than across the board headcount reductions. But there'll be a few companies that'll say, lost big orders needed to do a headcount reduction shift in business. So we're hiring, but we're not hiring as many as we were. Only one comment around AI, uh, but I included it just because that seems to be the topic of the day for the last several months is are we really seeing an AI impact, um, on the employment side on the new business? Um, construction is one, Lou, that really stands out to me as Tale of Two Cities where you see the housing construction guys very unhappy and the uh, data center construction people unhappy that things are costing more or might be delayed, but very happy at their level of business activity.

Speaker B: Saw an interesting comment made by someone regarding AI, uh, you know, because, uh, people are concerned that they're going to lose their jobs and so on because of robotics and so on. And the comment was made that they're going to still always need somebody to pick the robots up when they fall down.

Speaker A: Very good.

Speaker B: I think we're going to be really in trouble when the, uh, robots and AI, uh, know how to turn themselves back on when humans turn them off and build themselves.

Speaker A: Yeah, we've seen a movie or two about that.

Speaker C: Right. One of the things that we talked about when we did the manufacturing report and you know, we kind of. Susan left us with a final comment, really, which was, uh, one of the things that they're finding is that the importance of upskilling now, even in your current position, because of AI and understanding it and because of the replacement of AI of certain jobs and maybe keeping those and like growing and that's how they're going to kind of keep what they have in employment. Is that something that anybody's commented on?

Speaker A: Well, so, um, there have been, I don't think in this report, but in prior reports there have been commentary around the skill set to be able to make it work. I was at a business dinner a month ago. Um, we had a CFO from a sports team, uh, CFO from a large, um, marketing media organization, and a VP of finance from a technology company. And the first two said, yep, we're trying AI, we're using, uh, various packages, uh, seeing where it can benefit us. And the technology guy was saying, yeah, I come in the first day of the month and my full month end report is already done. It was done overnight using the bots, getting the information and people like staring at them like, wow, this is a big gap between those that have and those that don't have in terms of that internal technical capability.

Speaker C: Yeah.

Speaker B: I think that uh, the numbers that I'm hearing is that basically in manufacturing something like 60 or 70% of manufacturing still has not, not gotten into the swing of things in regards to AI. Are you following that at all?

Speaker A: Uh, so we're not seeing a lot of commentary in the services industry around application of AI and where it's delivering benefits. Um, specifically in the procurement field there's a lot of areas where AI is being provided and speeding up work, um, or making less touches, which really at the end of the game means fewer people. Uh, whether you do layoffs or whether you just don't hire as fast if you're a growing company, depends. But certainly it's taboo to talk about. We're investing in AI and we're going to be reducing headcount. It's a very touchy subject. But to me in some business areas it's just inevitable, um, whether we talk about it or whether it just happens on the side. There are administrative roles that um, you know, just look at spell check, um, you know, editors in terms of grammar and that's AI that's been in systems for 20 years. Um, there's a lot of AI already in application, which we can see has either increased the amount of stuff we turn out, which sometimes is not good, um, or uh, reduces the amount of labor we need and the amount of secretaries that we need. You know, look, 20 years ago, the amount of secretaries and admins we have now. It's very unusual to find anyone other than C suite that has a dedicated admin because travel's automated. You know, writing is automated email that all have elements of AI incorporated into them. We just don't call it AI right now.

Speaker B: Yeah, I had the opportunity, um, fairly recently to go to a steel mill and uh, it was a tubing steel, uh, mill. And I was taken on a tour of the plant and the production line in the production of steel tubing was about three quarters of a mile long. And we walked along the plank watching the process, uh, continue. I don't think I saw five people below us. I mean it was totally automated. Totally automated, yeah.

Speaker A: In the data center business, you know, we're seeing it drive employment right now because of construction, but there aren't going to be a whole bunch of people pushing buttons on computers in the data centers.

Speaker B: Mhm.

Speaker A: You know, the idea there is it's going to be lights out, you build it and then you let it run. Um, so it'd be really interesting to see over the next two to three years or maybe it's 10 years as a data center, investment starts to shift from building to operating. Um, and the operating is really just utility costs, not people.

Speaker C: You know, one of the things that I noticed in the report and it just stuck out for me was healthcare, um, and not seeing a ton of backorders like, you know, like we used to see. And I wonder if, um, and I wanted to get your opinion on if that is a shift because I remember like during COVID we couldn't. Nobody could get a talk about back orders in healthcare. Like getting a mask was like, you know, finding gold. You know, they couldn't get like a needle to even implement some of the, some of the uh, the vaccine. So I'm wondering if that's just like we learned our lesson and that's because it's been, you know, we've brought a lot back into the US to help fulfillment for those orders. So we're ahead of that or if that's just something that's happening just as of right now, as of this year because of, you know, anything else or. I wanted to get your thought process on that.

Speaker A: Sure. Specifically for that. Amy. I think it's just we're seeing, we didn't see a lot of shortages before COVID Covid. We saw radical spikes in demand for things that really uh, from a Kanban standpoint, they were just pull system type things. You run out of something, you reorder it, it comes out of the distribution center, they reorder it, uh, goes into their area. But as an end user, you ordered it when you needed it. Nobody thought ppe, um, or needles was anything that they would put as an a skew that they needed to make sure that they had high inventories. And so now we've seen that level out, we're back to more stable demand. So the types of shortages we've seen has been, have been specific manufacturing sites that have gone out.

Speaker C: Right.

Speaker A: Or specific contamination which has caused shortages for specific substances. But in general. Yeah, your, your observation is the same thing I'm seeing is that very stable, very few shortages, um, the big issue it was two years ago, probably still is in some cases was all of the hand sanitizer flammable and people were actually losing their, or at risk of losing their insurance coverage for their warehouses because of the amount of flammable product they were storing that their insurance wasn't set to cover and they couldn't get rid of it. Nobody wanted it.

Speaker B: We still have an extra supply of toilet paper and hand towels.

Speaker C: Yeah, yeah, I will say that I think it's just like a natural thing now. I feel like every time I go to Costco I get two just to make sure mental like paper towels and toilet paper. I just, I just grab two every time. Just I don't know what.

Speaker A: After the Great Depression people were putting money under the mattresses, right? Grandparents. They weren't putting money in the bank again, no way, no how.

Speaker C: Yeah, I see that.

Speaker B: So um, getting back to uh, the report, um, the pricing has gone up a bit but that's partly a normal inflationary thing. Uh, what about uh, tariffs? What kind of impact is tariffs having on the services side?

Speaker A: So the commentary that we got around tariffs was specifically around Canadian tariffs, uh, in agriculture and lumber. Uh, concern about a 50% tariff and what that would do um, to product that's coming in. I'm not a tariff expert so I don't know exactly how the Canadian um, tariff surcharges are going into effect if they go into effect um, ah, for those products long term. But those were two areas where we got commentary and concern that um, that prices index, um, I wouldn't be surprised to see it in the 70s uh, for as for two to four months following full solution of the petroleum pricing getting back down to where it was um, uh before you know that's Lou, I got to restate that. Uh, since the prices index shows is really an indication of up in price, I don't see a shift down into the 50s for, for a while because we're not going to see continued up in price. But compared to January, you know we're still $20 a barrel higher and we haven't seen the full impact of petroleum related products flowing through the supply chain that we're going to continue to pay higher prices on uh, than last month for several months here still. Um, and then what we'll see is that that'll start to moderate and we'll be back down into the 60s I think by the end of the year, maybe high 50s. But that would have to be something really dramatic. You know, price of oil down in the $50 range.

Speaker B: Uh, you're not going to see that anytime soon.

Speaker A: I don't think so either.

Speaker B: Uh, I'll be surprised to see it in the 80s anytime soon which is where it historically has been in recent times.

Speaker A: Yeah, well right now I think we're around 84, 84, 85. Um, so you know, anybody's guess as to whether that's going to go up or down over the next two months as we get you know, multiple um, information uh, in the Press. Things are going better, things are going worse. Um, and you know the good news though, what's the old saying? Um, um, necessity is the mother of invention. We're seeing alternate pipelines getting funded and other ways of moving oil, uh, increasing. And that's going to have long term benefit, at least for those that are buying oil, not for those who are selling oil.

Speaker B: There's an interesting story floating about that Iran may have known this was coming and they floated something like 190 million barrels of oil on ships before the Iranian war started. Wow. And that was a way of trying to stabilize the uh, pricing of oil at least for 60 days. If in fact there was a war and it only lasted a week or two or three. Um, uh, that's a story that I'm going to be checking out and we'll be reporting on that, uh, sometime soon.

Speaker A: China buys a lot of oil for sure.

Speaker B: Yeah, they do. Yeah, they do. Um, so getting again, getting back to um, uh, the report, I, uh, see the import. Oh, we talked about the imports, uh, regarding backlog, which seemed to have taken a hit, minor hit.

Speaker A: Yeah, yeah. Um, it's been strong. You know, it's been above 50 for, was it five or six months? It's got a pretty good run going. Um, but it's just slightly above 50 now where, uh, it was much stronger last uh, last few months. Um, that one, Lou, I see directly related to employment. Uh, if you're able to, if you're able to keep your backlog around 50, not increasing or decreasing same as last month, and you don't need to hire more people, you're not going to hire more people. M. And that's the big, for me, that's the one that I keep watch on is are we continuing to see backlog and backlog increase? If we see significant backlog increasing, if we're seeing 56, 57, 58, I'd expect to see that employment number going up. If we see 50s, 52, it seems like people are able to, or companies are able to keep up with the backlog without hiring more people, There isn't a reason for them to increase, increase employment. And then when you compound that with potential benefits of AI, um, are those pilot projects going to be able to sustain, um, from a productivity standpoint than some of the, some of the folks who leave or retire. You know, maybe we don't need to or at least should wait a couple extra months to see if we can do without hiring another person into that role. Except for the very specialized roles which still seem to be difficult to hire for.

Speaker C: You know, I did notice that and I thought that this was, this looked good to me is, um, for business services and management, small businesses. The comment was there's growth, we're seeing consistent growth. And I think, you know, for the most part small businesses are really what make up a tremendous amount of the country. Right. So when we're talking about a lot of these businesses, we're talking from like a 30,000 foot scale. But to hear, to hear that number and really relate that to the small business, um, I think that sounds incredibly promising. So why do you, I mean, what do you attribute to that too?

Speaker A: So I, I think that, Amy, we, we have small businesses that are included in the survey, but not to the level, you know, not, not to the level that you see them making up the number of companies in, you know, in the US industry.

Speaker C: Right.

Speaker A: So I think that's an area where we could, we could continue to make the ISM Services survey more robust, um, especially in the conversation of AI, because there are a lot of things that AI from an administrative standpoint can help you with and you don't need to have a whole bunch of people reviewing invoices and you don't have to buy an erp. If you're a fairly simple business, you can reconcile invoices and receipts and payments from your bank statement and really just look at exceptions very easily. Using AI, you can automate sales and sales distribution with some AI tools. Is it going to be as good as you writing it yourself? Not yet, but um, and boy, when you see it coming across, if you're like me, you delete it right away. But I think that's, I think that's, that's a huge area where AI is going to benefit the US is the ability for people to grow small businesses faster.

Speaker C: I agree. I also, I also personally believe that AI or no AI, at the end of the day, people do business with people that they like and there has to be that element of connection. And in a small business you still need that. That's, that's still a very important part of, you know, who people choose to do business with on a day to day level. So I think there's still a lot of growth opportunity for actual people jobs.

Speaker A: That's one of the unpleasant, um, consequences for some people of having a procurement organization because as you grow from a small business to a larger business, it's about who's the best provider, not who's the one that you've grown to trust over a period of time. Who you know, um, and so that as companies grow bigger and bigger, it becomes a more, more and more of a financial consideration. You know, when you're spending $20,000, do you want to spend $50,000 doing a supply review? No, never. Um, but if you're spending $20 million. Yeah, you're going to look at that every year.

Speaker C: Yeah, yeah, that's true. That's very true. Well, keep rooting for the small businesses.

Speaker A: Absolutely. They're the ones that make America run.

Speaker B: That's absolutely true, considering that's the backbone of our economy, the small business. And I thought I heard the numbers recently about the number of new businesses that are opening up have hit, uh, record numbers. Uh, do you know of anything about that, Steve?

Speaker A: No, that's not on my radar. But if that's true and that um, the, um, number of failures reduces from 95% over five years to 80, uh, because of better capabilities, that would be awesome.

Speaker B: Absolutely, absolutely. Um, Amy, uh, any other points you want to touch on?

Speaker C: No, I just, just. I guess my last question would be like, what, what would you have us be looking for for next month? What are the hopes for for next month? Or what are you for maybe forecasting?

Speaker A: Well, the business activities, second highest in 26 months. New, um, orders, fifth highest in the last 26 months. Um, so I would love to see that backlog grow a little bit enough that we're going to increase employment. That's what I would like to see. Um, and then we get a PMI that's in, that's 55, 56, because our employment number gets to 52. Uh, that would be, that would be a great sign that more people are winning in the economy and that. That would be great.

Speaker C: Yeah, I think that sounds like. Cross our fingers. Let's get there.

Speaker B: I can't speak to the services area, but on the manufacturing side, June, July and August, typically things go down. And yet this past summer everything has gone up. Uh, so I don't know if that's an anomaly or is that a forecast for what's coming in September, October, uh, which typically is when things pick up in manufacturing. Um, so the indication to me is that it's going to get even better or it's an anomaly and it's going to. Bottom is going to fall out, one or the other.

Speaker A: Yeah, there's, you know, old sayings are old sayings for a reason. Um, war makes good business. Uh, in your services industry. If Tim, um, who we both know and trust, um, Tim's perspective of services trails manufacturing by three to four months. We're pretty excited in the services industry that there's more to come with the numbers that we saw in the manufacturing pmi.

Speaker B: Well, from your lips, uh, Steve, any parting comments?

Speaker A: Watch out for those, uh, those petroleum, um, related product, uh, price roll through, you know, make some deals with suppliers that um, you know, you're, they need to hold tight for the next six months and you'll share benefit on the downside when oil prices come down or you'll make good, you know, when you get down there, uh, at the end if that hasn't happened, um, so that everybody can win together rather than uh, you know, it being a constant struggle of price up, price down.

Speaker B: Okay folks, that's, that's a wrap. If you like the show, give us a like. If you would like, sign up and subscribe and you'll know, be notified when our uh, other shows are being broadcasted. Uh, Amy, thank you for joining. Uh, Steve, thank you. And we'll see you next month. Take care everyone.

Speaker A: Thanks again for joining us on another episode of Manufacturing Talk Radio with hosts Louis Weiss and M. Amy Nicklaus. Before you head out, make sure to subscribe and leave us a review. For more information about the show and the manufacturing industry, head over to mfgtalkradio.com that's mfg t-a l k r a dash I o dot com. This podcast is a part of the C Suite Radio Network. For more top business podcasts, visit C suiteradio.

Speaker C: Com.