Trade Turmoil: U.S. Services Sector Feels the Squeeze

The U.S. services sector experienced its first contraction in nearly a year in May, driven by escalating tariffs and rising input costs. The uncertainty surrounding President Trump's trade policies has hindered business planning and threatened economic growth, with key industries reporting varied impacts amid inflation concerns.

The U.S. services sector has contracted for the first time in almost a year this May, as businesses face escalating prices for inputs amid persisting trade policy uncertainty under President Donald Trump. The Institute for Supply Management (ISM) has reported a drop in its Purchasing Managers Index (PMI) to 49.9, indicating contraction for this crucial segment that comprises over two-thirds of the economy.

Trump's fluctuating tariff decisions have left many businesses struggling to plan ahead. According to Steve Miller from the ISM Services Business Survey Committee, May's PMI level reflects uncertainty rather than severe contraction. While some industries such as healthcare and social assistance report growth, others like retail and construction face significant challenges due to tariff instability and supply chain disruptions.

Businesses in manufacturing and transportation industries have been hit particularly hard, with inflation and supply delivery challenges compounding their difficulties. Despite these hurdles, economists suggest that while a recession is unlikely this year, continued trade-driven inflation remains a concern, potentially impacting economic data and labor markets in the near future.

(With inputs from agencies.)