US Services Sector Activity Contracts First Time Since June 2024

Activity in the U.S. services sector unexpectedly contracted in May for the first time since June 2024, with the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) dropping to 49.9, below the forecast of 52.0. This contraction is attributed to a sharp decline in new orders, which fell to 46.4, and stagnation in business activity at 50.0, the weakest levels seen in recent years, signaling growing uncertainty and weakening demand amid rising price pressures. The prices-paid index surged to 68.7, the highest since November 2022, reflecting inflationary pressures linked to President Trump's tariff policies, which have increased costs and complicated forecasting for service providers. Several sectors including retail trade, construction, and transportation reported contractions, while others like accommodation and food services saw growth, illustrating uneven impacts across the industry. Despite a marginal uptick in employment to 50.7, firms expressed concern about high inventory levels and ongoing supply chain disruptions, further underscoring the economic strain heading into the latter half of the year. Overall, the data points to mounting challenges for the U.S. economy as tariff-induced inflation and demand uncertainty weigh on service sector growth.