The US services sector effectively stagnated in July as firms – faced with tepid demand and rising costs – reduced headcount, according to a Bloomberg report on Tuesday local time.
The Institute for Supply Management’s index of services declined last month to 50.1, below all estimates in a Bloomberg survey of economists. Readings above 50 indicate expansion.
The employment index dropped to 46.4, contracting for the fourth time in five months and marking one of the lowest readings since the pandemic. The group’s measure of prices paid for materials and services, meanwhile, climbed to the highest since October 2022.
The data, released Tuesday, paint a picture of a sluggish service economy wrestling with the fallout of higher tariffs, cautious consumers and uncertainty stemming from the government policies, according to Bloomberg.
Last week, ahead of a self-imposed deadline of August 1, US President Donald Trump signed an executive order further modifying tariff rates with 69 trading partners, with most of the new tariff rates ranging from 10 percent to 40 percent, according to a release from the White House.
A Reuters report said that the Budget Lab at Yale now estimates the average overall US tariff rate has shot up to 18.3 percent, the highest since 1934.
Business activities expanded but at a slower pace than in June. The new orders index fell to 50.3, nearing stagnation, per Bloomberg, citing Steve Miller, chair of the ISM Services Business Survey Committee, who said that “the tariffs are raising prices-paid, a potential driver of future inflation.”
Last week’s lackluster employment report released by the Bureau of Labor Statistics (BLS) pointed to a weakening job market, according to the Xinhua News Agency.
July saw US job growth slow sharply, with only 73,000 non-farm jobs added, far below forecasts of 104,000 new roles, and the weaker-than-expected hiring pushed the unemployment rate up to 4.2 percent, from 4.1 percent in June, the report said.
The ISM services employment gauge has now contracted for two straight months. Miller said that “Our contraction readings in June and July indicate that the BLS numbers will continue to be weak through the rest of the summer,” per the Bloomberg report.
“With slowing job growth and wage growth, consumption is almost certain to be weak. Investment is not picking up the gap, so we will likely see further weakness, especially with state and local governments also being forced to make cutbacks,” Dean Baker, co-founder of the Center for Economic and Policy Research, said, according to Xinhua.