Businesses grow at a surprisingly fast pace, ISM finds, even as prices rise due to tariffs and oil

The economy isn't all sunshine and nice weather, but it's still growing at an above-average speed.

The largest part of the economy grew in August at the fastest pace in six months despite higher inflation and a new round of White House tariffs, suggesting a six-year-old U.S. expansion has plenty more room to run.

Service companies such as banks, retailers and restaurants, which employ most Americans, have posted stronger growth this year after a rough patch in 2025.

An index produced by the Institute for Supply Management climbed to 55.4% in August from 54.1% in the prior month.

Any number above 50% means business is growing, and readings above 55% are exceptional.

The ISM survey is one of the earliest indicators each month of the health of the economy. A similar poll of manufacturers, released a few days ago, was also quite strong.

What they show is rock-solid economy, fueled by a boom in artificial intelligence, that shows no sign of cratering.

"General business conditions are positive," a senior hospitality executive told ISM. "Business is picking up and forecast to increase over the next six months," another executive said.

Key details: New orders - a sign of future sales - rose to the highest level in three and a half a years. Business activity was strong almost across the board.

Businesses are holding the line on hiring new employees, however, in no small part to keep costs down. Tariffs and higher oil prices have increased their expenses and added other headaches.

"The challenges lie in managing through the dynamic nature of the administration's policies - tariffs and Middle East conflict - that have caused numerous input cost headwinds for suppliers and us," the hospitality executive told ISM.

A measure of how much companies pay for supplies topped 70% for the fifth time in the past six months. When inflation is low, the index readings tend to range in the 50s and low 60s in percentage terms.

Service companies reduced employment for the fifth time in the past six months, perhaps portending a weak August employment report on Friday.

Big picture: The huge services side of the economy is the best barometer of growth. The economy is expanding at an above-average speed even in a period of unusual turmoil at home and abroad.

The AI boom is a big reason why. So is a bull market in stock that's creating a record number of 401(k) millionaires and supporting strong consumer spending.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX rose in Thursday trading.

-Jeffry Bartash