U.S. ISM Services Index (June 2025)

ISM services tips back into expansion in June

• The ISM Services index tipped back into expansionary territory in June, rising to 50.8, after one month in contraction in May. Interestingly, the same number of industries reported growth in June as in May (10 of 18), but still down from 14 at the start of the year.
• Business activity improved 4.2 points to 54.2, while new orders jumped a sharper 4.9 points to 51.3. However, the backlog of orders remained in contraction, falling a point to 42.4.
• The employment subindex tipped into contractionary territory, falling 3.5 points to 47.2.
• Somewhat surprisingly, the prices paid sub-component fell 1.2 points to 67.5. However, this level remains well above the trend over the past couple of years, and price increases impacting cost of operations was mentioned frequently by survey respondents.

Key Implications

• Today's ISM Services report was expected to return to expansion in June, after flirting with contraction in May, and is consistent with the June jobs report in reinforcing the resilience of the U.S. economy. Still, a reading of 50.8 is below the average of the past 12 months pointing to a softening in conditions in the services sector. The sentiment on employment also bears watching as private sector services hiring did slow noticeably in June. 
• The modest improvement in services sector sentiment June is consistent with uptick seen in the Manufacturing ISM released earlier this week. Perhaps purchasing managers are getting over their initial shock from some of the early tariff announcements, as their worst fears have not been immediately realized. However, zooming out, the trend does point to cooling in the broader economy, which we expect to be a theme in the second half of the year. 

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.