The U.S. services sector showed minimal growth in July, as firms navigated rising input costs, subdued demand, and a slowing labor market, according to data released Tuesday.
The Institute for Supply Management (ISM) reported that its services index declined to 50.1 last month—just above the threshold that indicates expansion. This figure fell below all projections in a Bloomberg survey of economists.
The employment component of the index dropped to 46.4, indicating contraction for the fourth time in five months. This marked one of the lowest employment readings since 2020. Meanwhile, the prices-paid measure, which tracks costs of materials and services, rose to its highest level since October 2022.
The data reflect growing caution across the services industry, as businesses adjust to an evolving trade environment and uncertain economic signals. Analysts have pointed to recent tariff adjustments and weakening consumer confidence as contributing factors.
Last week, President Donald Trump signed an executive order revising tariff rates with 69 U.S. trading partners. According to a White House release, new tariffs now range between 10% and 40%, with the average overall tariff rate rising to 18.3%, the highest in decades, as noted by the Budget Lab at Yale University.
Business activity in the services sector continued to expand, albeit at a slower pace than in June. The new orders index fell to 50.3, indicating near-stagnant growth in demand. Steve Miller, chair of ISM’s Services Business Survey Committee, noted that rising costs are a potential driver of future inflation.
Recent labor data has also signaled a cooling employment landscape. According to the Bureau of Labor Statistics, non-farm payrolls in July increased by only 73,000—well below forecasts of 104,000. The unemployment rate rose slightly to 4.2%, up from 4.1% in June.
Given consecutive declines in the ISM services employment index, analysts suggest labor market softness may persist through the summer. Dean Baker, co-founder of the Center for Economic and Policy Research, indicated that weak consumption and limited investment may contribute to continued economic sluggishness in the coming months.
#SupplyChainNews #TariffImpact #ServicesSector #EconomicUpdate #USJobsReport
