U.S. Services Sector Sags in May; Businesses Face Higher Prices

The U.S. services sector contracted for the first time in nearly a year in May, while businesses faced rising input costs—highlighting the risk of a prolonged period of sluggish growth and high inflation, Lucia Mutikani reported for Reuters.

The back-and-forth on tariffs—announced, paused, then imposed again—has left many companies in limbo.

A survey from the Institute for Supply Management (ISM) released Wednesday showed that uncertainty remained the dominant theme as businesses tried to navigate President Donald Trump's frequently shifting trade policies.

The back-and-forth on tariffs—announced, paused, then imposed again—has left many companies in limbo, struggling to plan, to the detriment of the broader economy.

The Trump administration has given U.S. trading partners until Wednesday to submit their "best offers" to avoid new import levies set to take effect in early July.

"Until there is clarity on the trading environment, it appears that the business sector will remain wary of putting money to work," said James Knightley, chief international economist at ING.

The ISM said its non-manufacturing Purchasing Managers Index (PMI) fell to 49.9 in May—the first contraction since June 2024 and down from 51.6 in April. Economists polled by Reuters had forecast the services PMI would rise to 52, following a temporary easing of U.S.-China trade tensions.

A reading below 50 signals contraction in the services sector, which makes up more than two-thirds of the U.S. economy. However, the ISM noted that a reading above 48.6 typically indicates overall economic growth.