U.S. ISM Services Index (April 2025)

ISM services up slightly in April 

• The ISM Services increased 0.8 points to 51.6 in April, beating expectations of a small decline. Eleven of eighteen industries reported growth in April, up from ten in March, though still below the 14 reporting expansion in January and February.  
• Business activity declined, falling 2.2 points to 53.7. New orders increased to 52.3, ending a streak of monthly declines and reversing a particularly weak reading (50.4) last month. The imports index registered a large decline (-8.3), falling to 44.3 and sending the sub-index into contractionary territory.   
• The employment index increased to 49.0 but remains in contractionary territory, suggesting services payrolls continued to decline in April. However, the employment index has signaled contraction several times since early 2024, while the labor market continued to expand. 
• The prices paid sub-component jumped up to 65.1 from 60.9 April, suggesting price pressures are heating up in the service sector.

Key Implications

• The service sector expanded in April, but the details are less encouraging. While the overall index improved, business activity declined and it looks as though the service sector is feeling the effects of tariffs coming into place in April, cutting activity and imports at the same time. 
• Most respondents in this survey reported challenges to their operations and pricing from tariffs. The combination of areas which registered gains (new export orders, inventories, and prices) is indicative of businesses trying to get ahead of retaliatory tariffs or other policy changes and could foreshadow a deeper decline in the coming months. More importantly, the sharp increase in prices, coupled with the decline in activity, suggests the service sector could also be moving towards stagflation, something we have already seen in manufacturing. 

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