ISM survey: Unexpected contraction in US service sector in May, inflation rising

In May, the US service industry experienced its first contraction in nearly a year, with input prices rising, indicating that the US economy may still undergo a period of very slow growth and high inflation. The Institute for Supply Management said on Wednesday that the US non-manufacturing PMI fell to 49.9, dropping below the 50 mark and hitting its lowest level since June 2024. The new orders index dropped from 52.3 in April to 46.4, possibly due to weakening support from tariff-related lead indicators. Service industry clients believe that inventories are too high relative to demand, which is not a good sign for short-term economic activity. Supplier delivery performance continues to deteriorate, with longer factory delivery times indicating tight supply chains that could push up inflation due to supply shortages. Companies are also seeking to pass on tariffs to consumers. The input payment price index for services surged from 65.1 in April to 68.7, the highest level since November 2022, further reinforcing this point. Most economists expect the impact of tariffs on inflation and employment to be evident in the so-called "hard economic data" in the summer.