US services activity logs first contraction since mid-2024

Stuart Dryden reaches for an item at a grocery store on Wednesday, Feb. 21, 2024, in Arlington, Va. Dryden is aware of big price disparities between branded products and their store-label competitors, which he now favors. (AP Photo/Chris Rugaber)

WASHINGTON, United States — US services sector activity shrank in May for the first time since mid-2024, according to survey data released Wednesday, with President Donald Trump’s tariffs fueling prices and business uncertainty.

The Institute for Supply Management’s (ISM) services index logged a 49.9 percent reading last month, slipping from April’s 51.6 percent.

This was below the 50-percent mark separating growth from contraction, the ISM report added.

The May figure is “not indicative of a severe contraction, but rather uncertainty that is being expressed broadly” among respondents, ISM survey chair Steve Miller said in a statement.

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As Trump’s sweeping tariffs ripple through the world’s biggest economy, the new orders index moved into contraction territory for the first time in nearly a year.

New orders fall

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The new orders index was 46.4 percent last month, down from 52.3 percent in April, ISM said. Meanwhile, the employment index rose.

Miller noted that “tariff impacts are likely elevating prices paid by services sector companies,” with the prices index reaching its highest level since late 2022.

“Respondents continued to report difficulty in forecasting and planning due to longer-term tariff uncertainty and frequently cited efforts to delay or minimize ordering until impacts become clearer,” he said in a statement.

But impacts were harsher in certain sectors, with a respondent in the construction industry saying: “Tariff variability has thrown residential construction supply chains into chaos.”

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“Many items are still manufactured in southeast Asia, and suppliers are beginning to test the waters for increases,” the respondent added.

Another respondent said that due to confusion over which tariffs apply, “the best plan is still to delay decisions to purchase where possible.”