U.S. Services Sector Stalls in July as ISM PMI Falls Amid Tariff Pressures

Key Takeaways ✅

• U.S. services PMI fell to 50.1 in July from 50.8, missing expectations of 51.5
• Business activity, new orders, and employment all slowed
• Tariff impacts were the most cited concern among businesses
• Input prices surged to the highest level since October 2022
• Imports and exports both shifted from expansion to contraction

U.S. Services PMI Nears Stagnation in July 2025

The U.S. services PMI slipped to 50.1 in July 2025, down from 50.8 in June, and well below market forecasts of 51.5, according to the latest ISM data. This reading, just above the 50 threshold that separates growth from contraction, marks the weakest performance in the U.S. services sector since early this year.

Seasonal and weather-related factors contributed to the downturn, but businesses mainly pointed to rising tariff pressures, especially in commodities, as a growing concern. The PMI’s decline highlights the impact of ongoing global trade uncertainty on American service industries.

Subcomponents Show Broad-Based Weakness

The details of the report suggest a widespread slowdown across the sector:

• Business activity/production fell to 52.6 from 54.2
• New orders eased to 50.3 from 51.3
• Inventories dipped to 51.8 from 52.7

At the same time, employment dropped to 46.4, its second straight month in contraction territory and the fourth time in five months. Export and import orders also reversed course, falling into contraction, further signaling how tariff tensions are starting to hit global trade flows.

Read More: US Jobs Report in June Beats Expectations

Rising Costs Add Pressure

On the inflation front, the prices index jumped to 69.9, the highest reading since October 2022. Panelists noted that cost increases were driven by fuel, labor, and raw materials—many of which are subject to new or increased import tariffs.

Backlogs continued to decline, pointing to a slowing pipeline of future business. Supplier delivery times worsened, suggesting continued strain on supply chains.

ISM Services PMI Data Table

Outlook: Will Trade Uncertainty Derail Recovery?

While the U.S. services PMI remains technically in expansion territory, the July data paints a cautious picture. Businesses are increasingly worried about tariffs, particularly as tensions escalate with key trading partners. The sustained rise in input costs and weakening demand could weigh on future hiring and investment.

With employment shrinking and trade flows turning negative, the services sector may struggle to maintain momentum in the second half of the year, especially if tariffs continue to rise.

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