A key measure of new orders fell by nearly six points to 46.4 — the steepest decline since mid-2024 — while business activity stagnated, slipping to 50.0, the weakest level recorded since 2019. Order backlogs also thinned, with the index falling to its lowest since August last year.
The data suggests that higher tariffs imposed in recent months are beginning to weigh more heavily on business sentiment and consumer demand. At the same time, service providers reported rising input costs, with the prices-paid index jumping to 68.7 — its highest since November 2022.Although inventory levels fell in May, a separate measure tracking sentiment about stockpiles rose to 62.9, the highest in nearly a year. This suggests growing concern among firms that inventories remain too high and could put pressure on future production, including in manufacturing.
Export and import indices also showed contraction, as businesses deal with ongoing disruption linked to recent changes in US trade policy. The supplier deliveries index rose slightly, pointing to longer delivery times and ongoing supply chain adjustments.
Employment showed only a marginal improvement, with the ISM’s services employment gauge ticking up to 50.7 — just above the neutral mark — suggesting hiring remains limited amid uncertainty about future demand.
Taken together with recent data showing continued weakness in US manufacturing, the figures indicate that the broader economy is facing growing strain heading into the second half of the year.
