ISM survey: U.S. services unexpectedly contracted in May, inflation rose

The U.S. services sector shrank in May for the first time in nearly a year, and corporate input prices rose, indicating that the U.S. economy is still likely to experience a period of very slow growth and high inflation. The Institute for Supply Management (ISM) said Wednesday that the U.S. non-manufacturing PMI fell to 49.9, falling below the 50 mark and also the lowest level since June 2024. The index of new orders fell to 46.4 from 52.3 in April, likely due to a weakening boost from tariff-related leads. Service customers believe inventories are too high relative to demand, which does not bode well for economic activity in the near term. Delivery performance from suppliers continues to deteriorate, with longer factory lead times indicating tight supply chains that could push up inflation due to supply shortages. Businesses are also looking to pass tariffs on to consumers. That was reinforced by a surge in the price index paid for service inputs from 65.1 in April to 68.7, the highest level since November 2022, with most economists expecting the impact of tariffs on inflation and employment to be felt in the summer's so-called hard economic data.