From Yahoo Finance: 2025-06-04 10:15:00

The U.S. services sector contracted for the first time in nearly a year in May, with the ISM reporting a drop to 49.9, the lowest since June 2024. Economists expected growth due to easing trade tensions, but businesses faced higher input prices. The uncertainty of Trump’s import duties has hindered business planning, leading to a slowdown in the sector.

Manufacturing also contracted for a third month in a row in May, with suppliers facing delays due to tariffs. Businesses are struggling to give financial guidance for 2025, as stagflation becomes a concern. The new orders measure dropped significantly, indicating a weakened boost from tariff front-running and excess inventory levels.

Suppliers’ delivery performance worsened, leading to strained supply chains and potential inflation. Businesses are looking to pass on tariff costs to consumers. Although a lengthening in delivery times usually indicates a strong economy, bottlenecks in supply chains are causing delays. Prices for services inputs surged to the highest level since November 2022.

Despite the contraction, services sector employment picked up in May. The government is expected to report an increase of 130,000 jobs in nonfarm payrolls for May, with a stable unemployment rate at 4.2%. Risks of a rise to 4.3% exist. Economists anticipate the impact of tariffs on inflation and employment to become more apparent in the coming months.



Read more at Yahoo Finance: US service sector unexpectedly contracts in May; inflation heats up