US DATA: ISM Services Prices Paid vs New Order Gap Ratchets Wider Again

The ISM services report for May showed a painful combination of another increase in prices paid (highest since late 2022) and new orders slumping (lowest since late 2022). One of the few positive areas was an improvement in employment. The overall index hit its lowest (and first sub-50 reading) since Jun 2024. Whilst it’s only just sub-50, such readings are rare having now only seen four months below the breakeven line since mid-2020. 

• ISM services: 49.9 (cons 52.0, 60 responses) in May after 51.6 in April – lowest since Jun 2024.
• New orders: 46.4 (cons 51.6, 4 responses) in May after 52.3 in April – lowest since Dec 2022.
• New export orders only fell 0.1pt to 48.5 vs the 5.9pt slide in overall new orders.
• Prices paid: 68.7 (cons 65.1, 6 responses) in May after 65.1 in April – highest since Nov 2022.
• Employment: 50.7 (cons 49.0, 4 responses) in May after 49.0 in April – highest since Feb 2025.

ISM Services Chair Miller on the report: “May’s PMI® level is not indicative of a severe contraction, but rather uncertainty that is being expressed broadly among ISM Services Business Survey panelists. The average reading of 50.8 percent over the last three months still indicates expansion in that time period, but it is a notable shift of 2 percentage points below its average of 52.8 percent over the previous nine months. The New Orders Index moved into contraction territory for the first time in nearly a year. Tariff impacts are likely elevating prices paid by services sector companies, with the Prices Index hitting its highest level since November 2022, when the Bureau of Labor Statistics’ CPI indicated that prices had increased 7.1 percent as compared to November 2021. Respondents continued to report difficulty in forecasting and planning due to longer-term tariff uncertainty and frequently cited efforts to delay or minimize ordering until impacts become clearer.”