US services sector unexpectedly contracts amid macro uncertainty
By Benjamin Chiou
Date: Wednesday 04 Jun 2025
(Sharecast News) - The US services sector unexpectedly contracted in May for the first time in nearly a year as Donald Trump's tariff rampage raised price pressures and federal budget cuts affected purchasing decisions.
The closely followed Institute for Supply Management's service-sector purchasing managers' index came in at 49.9 for last month - marginally in negative territory, defined by any number under 50.0.
This was 1.7 points lower than April's reading of 51.6 and the lowest reading since June 2024.
In fact, this was only the fourth contraction in 60 months since the recovery from the Covid-induced recession began in June 2020, according to the ISM.
The new orders index slumped to 46.4 from 52.3, while production was stagnant at 50 down from 53.7. The inventories index fell to 49.7 from 53.4, while the backlog of orders measurement dropped to 43.4 from 48.0.
Steve Miller, chair of the ISM Services Business Survey Committee, said that the headline reading reflected a feeling of "uncertainty" rather than a severe contraction.
"Tariff impacts are likely elevating prices paid by services sector companies, with the Prices Index hitting its highest level since November 2022, when the Bureau of Labor Statistics' CPI indicated that prices had increased 7.1% as compared to November 2021," Miller said.
"Respondents continued to report difficulty in forecasting and planning due to longer-term tariff uncertainty and frequently cited efforts to delay or minimise ordering until impacts become clearer."
In contrast, the lesser followed S&P Global US services PMI came in at 53.7 for May, up from 52.3 the month before.
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