By Jeffry Bartash
ISM services index shows higher inflation and lower employment
The large services side of the U.S. economy barely grew in July as ongoing trade wars raised costs, spurred reductions in employment and forced businesses to delay future plans until the scope of tariffs become clear.
A survey of businesses such as retailers, restaurants and package deliverers slipped to 50.1% last month from 50.8% in June, the Institute for Supply Management said Tuesday.
Any number above 50% signals expansion, but the latest survey suggests the services sector is straddling a fine line.
“The employment index’s continued contraction and faster expansion of the prices index are worrisome developments,” said Steve Miller, chair of the survey.
The services sector employs most Americans and is more immune to tariffs than the manufacturing sector, but virtually every company has felt the knock-on effects of the Trump administration’s new levies.
“Tariffs are causing additional costs as we continue to purchase equipment and supplies,” an executive at a healthcare company told ISM.
A construction executive also said the trade wars have made it harder to plan for next year. “Trade uncertainty [is] causing client re-evaluation of feasibility for projects in certain sectors, resulting in some delays or cancellations,” the executive said.
Key details:
— The new-orders index dipped 1.0 point to 50.3% but stayed positive.
— The employment barometer fell slightly to 46.4%, the lowest level in four months.
— The prices-paid index, a measure of inflation, rose 2.4 points to 69.9 and hit a nearly three-year high.
“Tariffs are now starting to show up in pricing, and we are seeing increases across the board,” a transportation executive told ISM.
Big picture: The economy is still growing, but it has taken a turn for the worse during the summer as the trade wars have dragged on. Economists predict slow growth and higher inflation in the second half of 2025 as well.
The White House has negotiated a number of trade deals, and it’s possible the economy could pick up steam if the disputes are settled, and especially if the Federal Reserve cuts interest rates soon.
For now, “economic uncertainty remains the dominant theme,” a real-estate executive said.
Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX fell in Tuesday trading but stayed near record highs.
-Jeffry Bartash
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08-05-25 1038ET
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