The ISM Services Purchasing Managers’ Index fell to 49.9 in May, down from 51.6 in April. A score below 50 indicates contraction. This reading is the lowest recorded in several months and was below most economists’ predictions in a Bloomberg survey.
A crucial indicator of new orders decreased by nearly six points, landing at 46.4—marking the steepest drop since mid-2024—while overall business activity remained stagnant at 50.0, the weakest level observed since 2019. Additionally, order backlogs diminished, with the index reaching its lowest point since August of last year.
The data hints that recent increases in tariffs are starting to exert more pressure on both business sentiment and consumer demand. Concurrently, service providers noted a rise in input costs, with the prices-paid index surging to 68.7—its highest level since November 2022.
Even though inventory levels saw a decrease in May, a separate index measuring sentiment regarding stockpiles rose to 62.9, the highest in almost a year. This indicates an increasing worry among companies that their inventory levels are excessively high and could impact future production, including in manufacturing.
Indices for exports and imports also indicated contraction as businesses grapple with ongoing disruptions linked to recent shifts in US trade policy. The supplier deliveries index increased slightly, indicating longer delivery times and ongoing adjustments in the supply chain.
Employment saw a marginal improvement, with the ISM’s services employment gauge rising to 50.7—just above the neutral point—suggesting that hiring remains constrained amid uncertainty regarding future demand.
Collectively, alongside recent data reflecting ongoing weaknesses in US manufacturing, these figures suggest that the broader economy is encountering increasing strain as it moves into the second half of the year.
