Activity in the U.S. services sector—long the backbone of the economy—unexpectedly showed no signs of growth in May, while cost pressures surged to their highest level in over three years, intensifying fears that tariffs and trade frictions are stoking a stagflationary environment.
The Institute for Supply Management’s Services Purchasing Managers Index fell to 49.9% in May, down from 51.6% in April, missing consensus expectations of 52%. The reading marked the first marginal contraction in services activity since June 2024. The ISM Services PMI has contracted in only four of the last 60 months dating back to June 2020.
New orders plunged to 46.4%, a 5.9 percentage point drop on the month, while business activity stagnated at 50%, down sharply from April’s 53.7%.
Employment improved slightly to 50.7%, after two months in contraction territory. The Backlog of Orders Index …