The latest Services ISM® Report On Business® has revealed a notable shift in the U.S. services sector for May 2025. For the first time since June 2024, the Services PMI® has dipped below the critical 50-percent threshold, highlighting rising uncertainty and fresh challenges for service-driven businesses across the country.
Services PMI May 2025: U.S. Services Sector Enters Contraction
In May 2025, the Services PMI® stood at 49.9 percent, signaling a slight contraction for the sector. This index dropped 1.7 percentage points from April’s reading of 51.6 percent. Notably, this is only the fourth time in 60 months that the index has fallen below 50 percent since the recovery from the pandemic-era recession. The Business Activity Index matched this trend, remaining unchanged at 50 percent, while the New Orders Index slid to 46.4 percent, firmly in contraction territory.
Key Economic Indexes Signal Growing Tariff Uncertainty
Several other important indexes reflected the challenges currently facing the U.S. services sector. While the Employment Index climbed to 50.7 percent, ending a two-month contraction, the Supplier Deliveries Index rose to 52.5 percent, indicating slower delivery times. Meanwhile, the Prices Index surged to 68.7 percent, marking its highest value since November 2022. This jump points to increasing cost pressures, with tariffs and supply chain disruptions cited as key issues. Respondents in the survey described difficulty in forecasting and planning, with many businesses delaying or minimizing orders to better manage tariff uncertainty.
Industry Performance and Outlook from ISM Business Survey
Performance varied widely across the 18 services industries surveyed.
- Ten industries—including Accommodation & Food Services, Public Administration, and Health Care—reported growth in May.
- In contrast, eight sectors—such as Retail Trade, Construction, and Wholesale Trade—experienced contractions.
Survey respondents shared mixed sentiments: some noted growth opportunities, while others flagged concerns related to federal budget cuts, increased costs, and project planning difficulties. Sectors connected to data centers, commercial growth, and infrastructure reported stronger activity, but residential growth has stayed flat.
In summary, the May 2025 Services PMI® highlights a period of transition and uncertainty for the U.S. services economy. Although not indicative of severe contraction, ongoing tariff concerns and fluctuating demand are reshaping business outlooks. Looking forward, industry leaders will be closely monitoring economic signals and policy developments to navigate the months ahead.
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