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Report On Business® Roundup: April Services PMI®

May 05, 2025
By Dan Zeiger

While trade-war alarm bells have been ringing in manufacturing, the Services ISM® Report On Business® numbers for April indicated that the sector that makes up most of the U.S. economy is displaying resiliency, at least for now.

The Services PMI® reading of 51.6 percent was up 0.8 percentage point compared to the previous month and exceeded analysts’ expectations. The New Orders Index (52.3 percent) was at a four-month high, and the Employment Index (49 percent) nearly returned to expansion, suggesting at least a partial rebound from March’s 7.7-point plunge.

Still, optimism is cautious, considering that the Prices Index elevated to 65.1 percent and the Imports Index contracted. Panelists’ comments were dominated by tariffs, and sentiment suggested that many companies are in wait-and-see mode, Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Monday.

“There was a lot of commentary regarding decision making and planning difficulties around potential tariff impacts,” he said. “After the additional inventory ordering (in recent months), there’s been a pause until people see how the tariffs actually shake out.”

Miller continued, “You’re seeing that on the manufacturing side, and many companies in the services industry are holding off on making additional commitments while they while they work through their inventory and see how tariffs land.”

Once again, social-media musings by President Donald Trump added to the anxieties on trade, including a new threat that would have serious and unprecedented ramifications for the services sector. More on that later.

“This was a somewhat better ISM Services report than we expected,” wrote Scott Anderson, Ph.D., BMO chief U.S. economist and managing director. “With that said, the negative impact on services activity and inflation from the tariffs and government spending cuts are very real and already beginning to materialize.” Higher prices, lower business activity and employment cuts will impact the sector without a pivot on tariffs, he added.

Among the Services report’s bright spots: The Business Activity Index was at its lowest level since June 2024 (50.2 percent), but the reading of 53.7 percent — a decrease of 2.2 percentage points compared to March — is good by any standard. And amid concerns of a travel boycott from Canada and European nations, the Accommodation & Food Services (A&FS) industry had a strong April.

In addition to posting the strongest overall growth among the 18 services industries, A&FS had the best performance in business activity, new orders and employment. It was also the only industry that reported paying lower prices for materials and services. “If there’s a travel boycott, it’s not showing as an impact right now,” Miller said.

While there were no blinking red lights in the Services data for April, there were potential harbingers to watch, Miller said.

The Imports Index fell 8.3 percentage points to 44.3 percent, its lowest figure since June 2024 (44 percent) — again, not a surprise after a slowdown in buying to get ahead of tariffs. But a potential impactful development dropped on Sunday night, when Trump announced plans to implement on 100-percent tariff on foreign films.

Tariffs have traditionally not been applied on services. The U.S. is the world’s largest exporter of services, with more than US$1 trillion in value in 2023, according to the federal Bureau of Economic Analysis. As a result, America would be extremely vulnerable to retaliatory duties.

Expanding tariffs into intellectual property (IP) is a potential Pandora’s box, Miller said. “If (foreign films) are a precursor to expanding tariff impacts to IP, that would have a larger impact on the services sector than some of the tariffs on goods that are impacting construction or retail,” he said. “That could impact software development, management services done overseas, even call centers. That would be a bad sign.”

Tariffs of any kind are especially hard on smaller businesses that make up a significant share of the services sector, and Miller fears they will be vulnerable to a protracted trade war. Wrote a Business Survey panelist in Agriculture, Forestry, Fishing & Hunting, “Many small business customers source their products from China. They cannot afford to compete in the marketplace sourcing from other countries. We could not move products fast enough to beat the tariff starting dates.”

The Employment Index’s gain was aided by 14.6 percent of surveyed companies reporting increased staff levels, up from 13.5 percent the previous month, while 16.4 percent reduced their head counts, a decrease form 19.2 percent in March. That improvement was in line with a federal jobs report last week that reported 177,000 positions added in April, which exceeded forecasts.

However, Miller said on ISM’s LinkedIn Live broadcast that, over the last 1½ years, the Services Employment Index has tended to lead U.S. Bureau of Labor Statistics (ELS) data by about three months. “We had strong index readings in January and February, and better than expected BLS numbers in April,” he said. “We had weaker index numbers in March and April, and it’s reasonable to expect that (reflected in) the BLS data in June.”

The Report On Business® roundup:

Bloomberg: Growth at U.S. Service Providers Picks Up After Slumping in March. “The (New Orders Index) increased 1.9 points to 52.3 percent, the highest this year, and employment contracted at a slower pace. At the same time, (the Business Activity Index), which parallels the ISM’s factory output gauge, fell to the lowest level since June. The overall index suggests the services sector is holding up even as manufacturing contracts on the heels of higher U.S. duties.”

CNBC: ISM Non-Manufacturing PMI® 51.6 vs. 50.4 Estimated. “ISM’s April read: 51.6 percent is better than expected, higher than in the rear-view mirror,” analyst Rick Santelli said. “(The Prices Index) is a 65.1 percent — once again, this is zooming. We were expecting a number around 61 percent … and this is the highest since January 2023. In this case, highest is not a good thing.” He added, “What we really want to pay attention to is the fact that these strong readings and the prices paid number are pushing (Treasury) yields higher.”

Mace News: Services Sector Expands in April for 10th Straight Month but Trump Tariffs Keep Outlook Uncertain. “On the supply delivery front, Miller noted that the services sector is not experiencing the same type of strains on customs-clearance of containers out of ports and indications of transportation disruption around the ports that were reported (in the ISM Manufacturing data) last week.”

MarketWatch: Services Sector, the Main Engine of the U.S. Economy, Strengthened in April. “Manufacturing has dominated the news because of tariffs, but uncertainty has spread over into the services sector. Educational services, real estate and utility companies talked about the tariff uncertainty. Companies said that tariff pressure has started to affect pricing.”

Reuters: U.S. Services Sector Expands With Hints of Rising Price Pressures. “The survey added to solid job growth in April in offering assurance that the economy was not near a recession despite gross domestic product contracting in the first quarter, burdened by a massive inflow of imports as businesses sought to avoid higher prices from tariffs.”

In case you missed Thursday’s Report On Business® Roundup on the release of the March Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Monday. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Antonio Diaz)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.