US ISM Services PMI slipped unexpectedly into contraction territory in May, falling from 51.6 to 49.9, its first sub-50 reading since June 2024 and well below market expectations of 52.0.
The drop was driven by sharp declines in both business activity, which fell from 53.7 to the breakeven 50.0, and new orders, which plunged from 52.3 to 46.4, indicating a broad-based pullback in demand. On the brighter side, employment rebounded into slight expansion at 50.7.
The ISM noted that the weakness is “not indicative of a severe contraction”, but rather widespread uncertainty, particularly related to trade policy. The average PMI reading over the past three months, at 50.8, suggests overall stagnation and marks a notable shift lower from the 52.8 average of the prior nine months.
Most concerning is the sustained upward pressure on costs. The Prices Index rose to 68.7, its highest level since November 2022. That’s the time when CPI rose 7.1%.
