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Report On Business® Roundup: July Services PMI®

August 05, 2025
By Dan Zeiger

Positive sentiment regarding the U.S. economy quickly dissipated amid sobering data in recent days, and those looking for a pickup from the Services ISM® Report On Business® for July were disappointed.

The Services PMI® registered 50.1 percent on Tuesday, coming in below expectations and with a number of yellow flags, particularly an Employment Index number (46.4 percent, down 0.8 percentage point compared to June) that confirmed the weak U.S. Bureau of Labor Statistics (BLS) jobs data for July, and a Prices Index figure (69.9 percent, up 2.4 points) that is on the brink of the 70-percent threshold that is often considered a blinking siren.

Add the New Export Orders (47.9 percent) and Imports (45.9 percent) indexes moving from expansion territory to contraction, a reflection of continuing global trade tensions, and one starts mining the subindex data for positive signs wherever they can be found. More on that later, but the overall data wasn’t great for a services sector that typically enjoys a last blast of vacation and experience spending in July before school resumes.

“Several survey respondents indicated the seasonal and weather factors had negative impacts on business, and the continuing employment contraction and faster prices expansion are worrisome developments,” Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Tuesday. The services sector has been resilient, but “tariffs are raising prices paid and are a driver of future inflation,” he added.

The Prices Index reached its highest level since October 2022 (70.7 percent). As observers noted that it was taking time for the impact of tariffs to show up in inflation data like the consumer price index, others noted that many companies were (1) still working off inventories boosted before levies hit or (2) were waiting to pass cost increases to customers.

In the ISM® Supply Chain Planning Forecast, released in May, most respondents said that their companies would wait until later in the summer to pull that tariff trigger. The Prices Index for July suggested that “those price increases are starting to be passed through, and we’re seeing that pressure on the supply chain,” Miller said.

The Employment Index contracted for a second straight month and for the fourth time in the last five months — a trend seemingly out of line with the monthly BLS figures. However, after the April report, Miller said that ISM’s Employment Index is a leading indicator and added that he expected the federal data to follow.

That forecast was mirrored not only by the disappointing BLS numbers in July, but also the downward revisions for previous months. And the index reading for July does not bode well for the next two or three months, Miller said.

“I would expect the BLS numbers to be weak through the rest of the summer,” he said. “Panelists are saying their companies are not backfilling openings. We’re not seeing mass layoffs, but there has been difficulty in hiring people for targeted jobs. It’s not a dramatic reduction in the numbers, but it’s a slowdown in hiring activity that’s real.”

Is there a ray of sunshine? If growth is growth, the Business Activity (52.6 percent) and New Orders (50.3 percent) indicated expansion, albeit at a slower rate. The Supplier Deliveries Index (51 percent) expanded at a faster rate, which is typical as demand increases. And the Backlog of Orders Index (44.3 percent), though in contraction, was up compared to June.

Those figures could be a sign of activity under the surface. If so, it will have to overcome an August that is typically tough to predict for the services sector, because it’s unknown how much end-of-summer consumer spending will taper. A potential alarm bell: Three industries that typically thrive when the weather is good and people have more time — Arts, Entertainment & Recreation, Accommodation & Food Services and Construction — contracted in July.

Then, there are the wild cards: the possibility of another tariffs eruption from the Trump administration, and the U.S. Federal Reserve (Fed) cutting interest rates in September. Either, Miller suggested, would have an impact on inflation.

“The decision the Fed will have to make is between a focus on employment or inflation,” Miller said. “Anything that the Fed does to improve business activity or employment by reducing rates will increase the money flow. And that would figure to increase business activity and push prices higher.”

The Report On Business® roundup:

Bloomberg: U.S. Service Activity Nearly Stagnates as Employment Contracts. The numbers “paint a picture of a sluggish service economy wrestling with the fallout of higher tariffs, cautious consumers and uncertainty stemming from President Donald Trump’s policies.”

CNBC: ISM Services Sector PMI® Surprises to Downside. “Expecting 51.5 percent on the headline (number), which comes in light: 50.1 percent,” analyst Rick Santelli said. He added, “These numbers do disappoint on the services sector, but instead of paying attention to the (Prices Index’s) inflationary implications, it’s the weakness that seems to be taking (over) the market, as (Treasury) yields are moving down a bit.”

Mace News: Services Sector Slows on Weak Demand, Soft Hiring and Rising Costs as Tariffs Begin to Bite. “One slightly bright spot was increased activity in the transportation industry in general as well as higher prices for and tighter availability of pallets for shipping and storing goods, he said, adding that it may be reflecting strong orders for defense equipment.”

MarketWatch: Biggest Part of U.S. Economy Barely Grew in July, ISM Finds, Due to Tariff Knock-On Effects. “The economy is still growing, but it has taken a turn for the worse during the summer as the trade wars have dragged on. Economists predict slow growth and higher inflation in the second half of 2025 as well.”

Reuters: U.S. Services Activity Flatlined in July, ISM Data Shows. “More benign inflation from the services sector has helped keep overall inflation in check, but the ISM data brings into question whether that trend will continue or further fan concerns about the emergence of stagflation.”

In case you missed last week’s Report On Business® Roundup on the release of the July Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Thursday. 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/Yigitdenizozdemir)

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.