The U.S. services sector unexpectedly fell into contraction in May, with the Institute for Supply Management (ISM) Services Purchasing Managers’ Index (PMI) tallying in at 49.9 compared to the expectation for 52.0 and falling from 51.6 in April. A reading above 50 indicates growth while a reading below 50 indicates contraction. This was only the fourth time in five years that the reading came in below 50.
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ISM Prices Rise while Employment Bounces Back to Growth
Given that the reading is just below 50, it doesn’t point to “severe contraction, but rather uncertainty that is being expressed broadly among ISM Services Business Survey panelists,” said ISM Services Business Survey Committee Chair Steve Miller.
Meanwhile, ISM’s Prices Index surged to 68.7 compared to the estimate for 65.1 and rising from 65.1 in April. That’s the highest level since November 2022. Furthermore, ISM’s Employment Index reverted to growth at 50.7 compared to the estimate for 49.0 and rising from 49.0.
Tariffs have continued to create uncertainty within the services sector, with respondents saying that it has been difficult to forecast business plans. Many businesses are also delaying or reducing orders until they can get a better picture of the impact of tariffs.
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