The US July ISM Services PMI is only 50.1, employment shrinks, and prices hit a new high since October 2022

On July 3rd, Thursday, the Institute for Supply Management (ISM) released data showing that due to weak demand and rising costs, the U.S. services PMI nearly stagnated in July, with companies beginning to reduce their workforce.

The U.S. July ISM non-manufacturing index was 50.1, below the expected 51.5 and lower than the previous value of 50.8. A reading of 50 is the dividing line between expansion and contraction. This ISM PMI data fell short of the predictions of all economists surveyed by the media. In May of this year, the index showed its first contraction in nearly a year, and this ISM services PMI is close to the low point of May, as well as near the lowest level since June 2024.

In terms of important sub-indexes:

• The new orders index fell to 50.3, nearly approaching stagnation.
• The business activity index continued to expand but at a slower pace than in June. This index is similar to the output index in ISM manufacturing.
• The employment index dropped to 46.4, marking the fourth contraction in the past five months and one of the lowest levels since the pandemic.
• The price index measuring raw materials and services rose to 69.9, the highest level since October 2022.
• Backlogged orders have decreased for the fifth consecutive month.
• The pace of inventory expansion has also slowed. The ISM inventory sentiment index fell nearly 4 points to 53.2, the lowest level since October of last year.

Media analysis stated that this ISM PMI data depicts a picture of weakness in the U.S. services economy, which is struggling to cope with the impacts of higher tariffs, cautious consumer attitudes, and the uncertainties brought about by President Trump's policies. The report aligns with the warning signals currently evident in the U.S. economy. Data released last week indicated that the U.S. labor market is weaker than previously expected, with consumer spending, adjusted for inflation, showing almost no growth.

After the data was released, U.S. stocks turned lower, and the decline in U.S. Treasury bonds narrowed during the day:

• The Nasdaq 100 fell nearly 0.7% during the session, having previously risen nearly 0.5% before the ISM services PMI data was released.
• The yield on the U.S. 10-year Treasury bond narrowed to less than 0.6 basis points, approaching 4.1950%. After the U.S. stock market opened and before the ISM services PMI was released, it had reached a daily high of 4.2237%. The yield on the two-year U.S. Treasury bond briefly fell below 3.69% after the data was released, currently up 2.64 basis points at 3.7016%.

Currently, there is a significant divergence between the two major PMI indices in the U.S., contrasting with the sluggish ISM services PMI is another important U.S. PMI data released earlier that day, which showed strong performance:

• The final value of the Markit Services PMI in the U.S. for July is 55.7, the highest since December 2024, with an expectation of 55.2 and an initial value of 55.2.
• The final value of the Markit Composite PMI in the U.S. for July is 55.1, with an expectation of 54.6 and an initial value of 54.6.

Despite the significant deviation in the headline data, the financial blog Zerohedge points out that both the ISM and Markit surveys agree on the weakness in the labor market and the surge in inflation.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated:

The substantial growth in business activity in the services sector in July has somewhat offset the slowdown in manufacturing, indicating that the U.S. economy remains strong at the beginning of the third quarter, which is encouraging. While the average GDP growth rate for the first half of 2025 is projected at 1.25%, the PMI for July suggests that growth could double to around 2.5%.

The expansion in July was primarily driven by a surge in demand in the technology sector and an increase in financial services activity, which is related to the improvement in financial conditions brought about by the recent stock market rise. However, the decline in service exports (including spending by foreign tourists in the U.S.) has become one of the drag factors on economic growth, coupled with overall weak consumer demand, which also limits growth momentum.

The recent increase in demand has led to a rise in unfinished orders in the services sector, prompting companies to resume hiring. However, there is also a sense of caution regarding hiring and expansion, due to significantly rising costs (often attributed to tariffs) and declining confidence in future prospects.

The decline in manufacturing confidence, combined with weakened confidence in the services sector, has caused overall business expectations to drop to one of the lowest points in nearly three years, indicating that growth faces certain downside risks in the coming months