The US ISM Services PMI for May registered 49.9, significantly below the expected 52 and down from the prior reading of 51.6 in April. The New Orders Index plummeted by 5.9 points to 46.4, marking the largest decline since June 2024. The Prices Paid Index surged to 68.7, the highest level since November 2022.
Following the release of the ISM Services PMI, US stocks and the dollar declined, while US Treasuries, gold, and safe-haven currencies advanced. Data released by the ISM on Wednesday, June 4th, indicated that the US services sector contracted in May for the first time in nearly a year, driven by a sudden slump in demand. Concurrently, the price index accelerated, reflecting the ripple effects of higher tariffs throughout the economy. The figure of 49.9 falls below the 50-mark threshold that separates expansion from contraction. The latest data was lower than the forecasts of the vast majority of economists surveyed by media. Key component details: The New Orders Index saw a sharp decline of 5.9 points, the largest drop since June 2024, falling to 46.4. The Business Activity Index decreased by 3.7 points to 50, a five-year low, indicating a stall in operations. This index is analogous to the Output Index in the Manufacturing PMI. Order backlogs also diminished, with the corresponding index falling to its lowest level since August 2023. The Prices Paid Index jumped to 68.7, the highest since November 2022. While services inventories decreased in May, the Inventory Sentiment Index rose by nearly 7 points to 62.9, the highest since July of last year. This suggests a growing number of firms perceive inventories as still too high, potentially pressuring the manufacturing sector in the coming months. Both the ISM’s Export and Import Indexes indicated contraction, reflecting businesses’ adaptation to the volatile trade policies of the Trump administration. The Supplier Deliveries Index rose, indicating longer delivery times as companies adjust their supply chains. The demand slowdown also prompted service firms to reconsider staffing levels. The Employment Index increased by 1.7 points to 50.7, showing that hiring activity moved out of contraction, but the degree of expansionary improvement was limited. By industry, eight service sectors reported contraction in May, including Retail Trade, Construction, and Transportation & Warehousing; ten other industries reported growth, led by Accommodation & Food Services. Analysis points out that the sharp contraction in new orders, coupled with the highest prices paid index since late 2022, indicates that higher US import tariffs are having a more pronounced impact on both demand and inflation. Steve Miller, Chair of the ISM Services Business Survey Committee, stated: ‘The composite index does not represent a severe contraction but reflects the pervasive uncertainty facing services businesses.’Respondents indicated widespread difficulties in forecasting and planning due to uncertainties surrounding long-term tariff prospects, frequently citing efforts to delay or reduce orders until the impacts become clearer.
Following the release of the ISM Services PMI, U.S. stocks and the dollar declined, while U.S. Treasuries, gold, and safe-haven currencies advanced: the S&P 500’s gain narrowed to 0.1%, and the Nasdaq 100 turned negative. The 10-year U.S. Treasury yield’s drop accelerated to 7.9 basis points, hitting a new daily low below 4.3750%. The two-year Treasury yield fell approximately 7 basis points, reaching a fresh daily low under 3.88%. The ICE U.S. Dollar Index dropped 0.3% to 98.932, and the Bloomberg Dollar Index fell over 0.4% to 1208.60. USD/JPY declined 0.5% to 143.25, while USD/CHF dropped 0.5% to 0.8192. The emerging markets currency index reached a new daily high. Spot gold briefly rose $10, climbing back above $3365 per ounce, with its intraday gain re-expanding to 0.36%. Earlier, another key U.S. PMI report showed: the final May Markit Services PMI at 53.7, exceeding expectations and the preliminary reading of 52.3. The final May Markit Composite PMI was 53, also above the forecast and initial estimate of 52.1. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented: ‘Service sector growth in May was stronger than initially estimated, and business confidence for the coming year also improved, partly influenced by the suspension of tariff hikes. Businesses have responded to this optimism by increasing spending and hiring. That said, this improvement starts from a low base, as April was particularly weak with growth nearly stalling and confidence hitting a two-and-a-half-year low. Company reports indicate that uncertainty regarding the policy outlook remained a significant constraint on expansion plans in May. Consequently, output growth and confidence levels remain below last year’s standards. So far, the PMI data suggests annualized GDP growth just above 1% for the second quarter, which, while averting a recession, aligns with our modest forecast of 1.3% GDP growth for 2025. ‘ Risk Warning and Disclaimer: Markets involve risks; investments should be made cautiously. This content does not constitute personal investment advice and does not consider individual users’ specific investment objectives, financial situations, or needs. Users should assess whether any opinions, views, or conclusions herein suit their particular circumstances.Invest accordingly at your own risk.
