Services Activity Barely Expands In April As Price Pressures Spike To Over 2-Year Highs: 'A Worrying Backstory Is Developing'

The U.S. services sector grew at its slowest pace in over 17 months in April, while inflationary pressures surged to an over two-year high, highlighting a troubling combination of weakening demand and rising costs fueled by trade tariff disruptions that could complicate the Federal Reserve's path forward.

According to data released Monday by the Institute for Supply Management (ISM), the Services Purchasing Managers' Index (PMI) edged up from 50.8% in March to 51.6% in April, slightly above economists’ expectations of 50.6. While this reading suggests continued growth, it’s the slowest expansion in activity since late 2023.

Pricing Pressures Intensify Despite Tepid Growth

ISM's subindex for prices paid, a key inflation gauge, jumped sharply from 60.9% in March to 65.1% in April, reaching the highest level since February 2023.

This spike reflects intensifying cost pressures across the service economy, driven partly by rising import prices and the pass-through effects of tariffs.

“Regarding tariffs, respondents cited actual pricing impacts as concerns, more so than uncertainty and future pressures," said Steve Miller, chair of ISM's Services Business Survey Committee.

"Respondents continue to mention federal agency budget cuts as a drag on business, but overall, results are improving."

The index for new orders rose from 50.4% to 52.3%, while the employment component climbed from 46.2% to 49% — still signaling contraction, but a less severe one.

Business activity, however, moderated from 55.9 to 53.7, its softest growth pace since January, though it still marked the 59th consecutive month of expansion.

S&P Global Flags Stalling Momentum, Stagflation Risks

S&P Global’s separate reading on the U.S. services sector painted a less optimistic picture.

The firm downwardly revised its final Services PMI for April from a preliminary estimates of 51.4 points to 50.8 points, a steep decline from March’s 54.4 and the lowest since November 2022.

"While tariff announcements mean manufacturing dominates the news, a worrying backstory is developing in the vastly larger services economy," said Chris Williamson, chief business economist at S&P Global.

"Business activity and hiring have come closer to stalling in April amid plunging business confidence."

Williamson indicated that services exports are falling at their fastest rate since 2022, while domestic demand appears to be softening.

He added that tariffs are pushing up input costs, especially in consumer-facing sectors like restaurants and hospitality, and warned of the growing threat of stagflation, a toxic mix of stagnant growth and rising inflation.

S&P Global's Composite PMI, which blends manufacturing and services activity to gauge overall private-sector performance, was also revised down from 51.2 to 50.6 in April.

That marked the weakest expansion since December 2023 and brought the index dangerously close to the 50 threshold that separates growth from contraction.

Market Reactions

Stocks remained broadly unaltered following the PMI releases.

The S&P 500 index held losses of 0.5%, trading at 5,655 points by 10:20 a.m. ET, potentially ending a 9-day winning streak. The Nasdaq 100 — as tracked by the Invesco QQQ Trust, Series 1 QQQ — slipped 0.7%, dipping below the 20,000 mark, while the Dow Jones Industrial Average trimmed earlier losses to trade down 0.2%.

Within the S&P 500, United Airlines Holdings Inc. UAL, Delta Air Lines Inc. DAL and EQT Corp. EQT were top gainers, each up around 3%.

On the downside, Zimmer Biomet Holdings Inc. ZBH, Tyson Foods Inc. TSN and ON Semiconductor Corp. ON were among the steepest losers, all sliding roughly 9% on the session.

The U.S. dollar index – as tracked by the Invesco DB USD Index Bullish Fund ETF UUP – trimmed losses after the PMI reports, as higher price pressures led traders to scale back bets on Federal Reserve rate cuts. Meanwhile, the 10-year Treasury yield rose by 4 basis points to 4.35%.

According to CME Group FedWatch, now there is only a 29% chance of a 25-basis-point cut by June, down from 35% on Friday.

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