Editor’s Note
The services sector returned to expansion in June, with the PMI® rising above the 50-percent threshold. This marks a recovery after a brief contraction in May.
Services Sector Returns to Growth in June
Economic activity in the services sector grew in June after just one month of contraction, according to the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®. The Services PMI® indicated expansion at 50.8 percent, above the 50-percent breakeven point for the 11th time in the last 12 months.
The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee:
“In June, the Services PMI® registered 50.8 percent, 0.9 percentage point higher than the May figure of 49.9 percent. The Business Activity Index returned to expansion territory in June, registering 54.2 percent, 4.2 percentage points higher than the ‘unchanged’ reading of 50 percent recorded in May. This index has not been in contraction territory since May 2020. The New Orders Index returned to expansion territory in June, recording a reading of 51.3 percent, an increase of 4.9 percentage points from the May figure of 46.4 percent. The Employment Index returned to contraction territory for the third time in the last four months; the reading of 47.2 percent is 3.5 percentage points lower than the 50.7 percent recorded in May.
“The Supplier Deliveries Index registered 50.3 percent, 2.2 percentage points lower than the 52.5 percent recorded in May. This is the seventh consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
“The Prices Index registered 67.5 percent in June, a 1.2-percentage point decrease from May’s reading of 68.7 percent. The index has exceeded 60 percent for seven straight months, with the May and June readings the highest since November 2022 (69.4 percent).
“The Inventories Index landed in expansion territory in June for the fourth time in 2025, registering 52.7 percent, an increase of 3 percentage points from May’s figure of 49.7 percent. The Inventory Sentiment Index expanded for the 26th consecutive month, registering 57.1 percent, down 5.8 percentage points from May’s figure of 62.9 percent. The Backlog of Orders Index continued its decline, registering 42.4 percent in June, a 1-percentage point decrease from the May figure of 43.4 percent, contracting for the 10th time in the last 11 months and posting its lowest reading since August 2023 (41.8 percent).
“Ten industries reported growth in June, the same number as reported in May. The Services PMI® has expanded in 57 of the last 61 months dating back to June 2020. The June reading of 50.8 percent is 1.6 percentage points below the 12-month average reading of 52.4 percent.”
Miller continues:
“June’s PMI® level is a welcome return to expansion, although slow growth and economic uncertainty were frequently referenced by respondents. This month’s reading is equal to the average reading of 50.8 percent over the prior three months, indicating both stability and slight expansion in that time period. Both the Business Activity and New Orders indexes returned to expansion territory, although the Backlog of Orders Index contracted at a faster rate compared to May. Price increases impacting costs of operations were mentioned more frequently this month.
“Middle East tensions were a new subject of comments in June, but there was no indication of related supply chain disruptions. The most common topic among survey panelists continued to be concerns about impacts related to tariffs.”
Industry Performance
The 10 services industries reporting growth in June — listed in order — are: Other Services; Transportation & Warehousing; Utilities; Arts, Entertainment & Recreation; Management of Companies & Support Services; Wholesale Trade; Public Administration; Retail Trade; Information; and Real Estate, Rental & Leasing. The six industries reporting a contraction in the month of June — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Construction; Mining; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Educational Services.
What Respondents Are Saying
“Restaurant sales and traffic remain flat to prior year. Staffing is adequate for our current needs, and no supply chain concerns this month.” [Accommodation & Food Services]
“Increased cost from tariffs and the potential for tariffs is impacting cost increases. Higher cost of high-dollar items like 150-horsepower farm tractors are forcing farmers to delay purchasing or purchase used equipment. Tension in the Middle East is creating great concern and uncertainty.” [Agriculture, Forestry, Fishing & Hunting]
“Sales remain stubbornly slow due to affordability issues with higher mortgage rates and high property values. Residential construction has embarked on cost-cutting measures through value engineering, supplier margin reductions and layoffs.” [Construction]
“Prices have gone up from tariff recovery fees — separate line items — but the supply chain, deliveries and inventories have remained mostly stable after the initial disruption. Costs continue to increase across the board, so our goal is to mitigate that.” [Health Care & Social Assistance]
“General uncertainty around the economy continues to drive increases in prices. Also, lots of SaaS (software-as-a-service) vendors are using the AI (artificial intelligence) boom to restructure pricing and products, resulting in massive increases.” [Information]
