US services sector stalls as hiring contracts and costs rise
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The news: The US services sector effectively stagnated in July, with the ISM index slipping to 50.1, below all estimates and just above the threshold for growth.
The numbers: Economists polled by Reuters and The Wall Street Journal had forecast the services PMI would rise to 51.5 and 51.2, respectively.
Employment contracted for the fourth time in five months, falling to 46.4, as firms slowed hiring and did not backfill open roles.
Prices paid rose to 69.9, the highest level since October 2022, as higher tariffs pushed up input costs. New orders edged lower to 50.3, from 51.3 in June, while export orders fell back into contraction.
There was growth in nine industries (two fewer than in June) including transportation, wholesale trade and finance, with backlogs shrinking for a fifth-straight month and inventories expanding, albeit at a slower pace.
The sharemarket erased morning gains after the data release and comments by US President Donald Trump in a CNBC interview, where he signalled imminent new sectoral tariffs and criticised JPMorgan and Bank of America for rejecting him as a customer in the past.
The context: The services sector, comprising over two-thirds of the US economy, had been a key source of growth as manufacturing declined. But the fresh data for July now reflects tepid demand, rising costs and business uncertainty stemming from President Trump’s tariff policy, which has lifted the average US tariff rate to 18.3%, the highest since 1934, according to the Budget Lab at Yale.
It comes after Friday’s jobs data showed a much weaker labour market than previously though amid increased tariffs and policy uncertainty.
The sources: Institute of Supply Management, Bloomberg, The Wall Street Journal
