SERVICES PMIs
S&P Global US Services PMI: Muted increase in business activity as optimism falters and employment falls solidly
The headline S&P Global US Services PMI® Business Activity Index recorded 50.7 in May, down from 51.0 in April. While remaining above the crucial 50.0 no-change mark, the index signaled only a marginal expansion that was among the weakest seen over the past two-and-a-half years.
The rise in business activity was supported by a renewed expansion in new business inflows midway through the second quarter. That said, sales growth was well below the long-run trend amid reports that budget constraints due to higher operating expenses had stunted growth. A stronger expansion in sales was also limited by a steeper reduction in international sales. The decline in foreign demand was the most pronounced since November 2022 and reflected economic and trade policy uncertainty.
Business confidence eased during May, reaching its lowest since October 2022, reflecting ongoing uncertainty regarding geopolitical instability and inflationary pressures. At the same time, firms were hesitant to take on staff, with headcounts falling for the second time in three months. In fact, the rate of job shedding was the most marked since May 2020.
Evidence of ongoing capacity pressures was nonetheless prevalent during May as outstanding business rose for the fifteenth month in a row but at a less pronounced rate than in April.
Cost pressures reportedly stemmed from rising fuel, energy and supplier prices, and pushed overall input costs up to the fastest degree in 2026 so far. Higher labor costs and tariffs also added to upward pressure on company operating expenses.
In line with the trend for overall costs, selling prices increased to a greater extent than in April with inflation comfortably above its long-run average. Firms often sought to pass higher input costs onto clients, although a stronger increase was limited by reports of competitive pressures.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence
“While the US manufacturing economy is reporting a surge in demand as war-related supply and price worries drive precautionary stock building, it’s a different story in the service sector. Demand for services has been largely stalled over the past three months, losing the strength seen earlier in the year.
“The sluggish services economy is acting as drag on overall economic growth, which the PMI data signal to be running at a modest annualized pace of just above 1% so far in the second quarter.
“Hardest hit are the consumer-facing service sectors, where orders are now falling at the steepest pace since the pandemic in 2020, blamed on a combination of squeezed spending power from energy prices hikes and customers pushing back on higher prices being charged for services. However, business services are also seeing reduced order book growth compared to earlier in the year and financial services firms are coming under pressure from higher interest rates.
“Rising costs and cooling demand are meanwhile causing service companies to cut staff at the fastest rate seen since the early months of the pandemic.
“The increase in input cost inflation being signaled by the PMI points to a further rise in consumer price inflation in the coming months, but on the other hand the weakening of demand growth and downturn in the labor market being indicated could help allay concerns over any inflation spike becoming more entrenched.”
- The ISM services index increased by 0.9pt to 54.5 in May, somewhat above expectations. The composition of the report was mixed-to-strong, with increases in the new orders (+3.8pt to 57.3) and business activity (+1.8pt to 57.7) components, but a small decline in the employment component (-0.1pt to 47.9). (…) The press release highlighted the strength in the business activity component, but noted that “respondents reporting that new orders were higher than last month most frequently attributed this to seasonality.” It also added that “respondents commented frequently that their companies had instituted hiring freezes or were not backfilling vacated positions.” (GS)
- The latest ISM surveys suggest that both manufacturers and — more significantly — services companies are paying higher prices:
Canada: Service sector returns to marginal growth in May
Service sector activity in Canada rose slightly in May, although growth was marginal and limited by a drop in new business volumes.
Firms continued to report a challenging operating environment, characterised by general economic uncertainty, and this weighed on sales and business sentiment. Employment numbers were reduced marginally in response.
Latest data also showed a noticeable acceleration of input price inflation, with costs rising at their fastest rate for four years on the back of increased fuel and wage expenses. Service providers raised their own selling prices, with inflation the highest since July 2023.
Eurozone economic activity declines at quicker pace as inflation bites
Private sector business activity in the eurozone fell at the sharpest pace in 18 months in May, according to the latest S&P Global PMI® data, marking back-to-back months of contraction for the first time since the end of 2024. Weighing
on output levels was a further fall in demand for euro area goods and services, with export markets a particular drag as non-domestic new orders sank at the quickest rate in five months.Signs of softening were also apparent in the eurozone labour market as job losses picked up.
As for pricing trends, input cost pressures ratcheted up further in May, remaining the sharpest seen since late-2022. For a third month in succession, the rate of output price inflation quickened.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:
“With business activity in the eurozone falling for a second successive month in May, it is looking increasingly likely that the economy will slip into contraction in the second quarter. The PMI data are indicating a 0.2% quarterly GDP decline barring any significant change in June.
“Price pressures have meanwhile intensified to their most worrying for over three years, hinting at inflation potentially running close to 4% in the coming months.
“These price pressures will sit uncomfortably with the ECB, which will want to be seen as acting swiftly to prevent higher inflation from becoming entrenched. However, policymakers will also clearly be concerned that they could be hiking rates into a downturn, adding to recession risks.
“Hence, while one interest rate hike might be seen as an insurance policy, the case for further rate hikes will be harder to make if the economy continues to weaken, not least as this softening of demand will itself constrain pricing power and wage growth.”
China: Service sector activity growth accelerates further in May
The headline RatingDog China General Services Business Activity Index moved further above the 50.0 neutral mark to 54.4 in May, up from April’s 52.6, signalling the steepest increase in services activity for three months. The current sequence of expansion began in January 2023.
The faster increase in activity was accompanied by a further acceleration in the rate of growth in new business moving through the second quarter. The rate of expansion in demand for services accelerated for the fourth time in five months and was broadly in line with the long-run survey average.
Increased client demand, business innovation and expansion, new client acquisitions, improved market conditions and the development of new projects were all mentioned as sources of new work. Incoming new orders rose for the forty-first successive month, the second-longest period of continuous growth in the survey history.
Higher inflows of new export business contributed to the latest rise in total new work, following slight declines registered in March and April. The rate of expansion in new international business was softer than the latest increase in domestic demand, however.
Chinese service providers continued to report positive forecasts for business activity levels over the next 12 months. Expectations improved to the highest since February and were greater than the rolling 12-month average. The latest anecdotal evidence highlighted improving market conditions, a brighter economic outlook, business developments, increased client demand, new projects and new business lines as reasons for optimism.
The faster increase in new business in May was sufficient to generate another rise in outstanding orders at Chinese service sector companies in May. Work-in-hand grew for the seventh month running, and at the steepest rate since June 2024.
Higher levels of outstanding business placed pressure on operating capacity, and companies responded by boosting workforces. Employment in the service sector rose for the first time in four months, and to a greater degree than the previous increase in January.
Cost inflationary pressure in the Chinese services economy continued to build in May. Companies linked rising costs to oil and fuel prices, increased procurement, higher wages and other labour costs, and increased business activity leading to greater expenses. The rate of input price inflation rose to the highest since October 2024, although it was still below the long-run survey trend since 2005.
With cost burdens rising but remaining below the long-run survey trend, service providers held their charges broadly unchanged in May.
Donald Trump’s pledge to unleash a ‘golden age’ of US manufacturing sputters
US private spending on manufacturing construction fell in April to $15.2bn, down about 16 per cent since Trump’s second term began, while factory employment has fallen by 77,000 jobs over the same period, according to official data.
The decline in spending on building plants comes despite 84 companies announcing more than $900bn in investments to expand US manufacturing since Trump’s inauguration in January 2025, according to FT calculations.
The divergence underscores how Trump has struggled to usher in a domestic manufacturing boom — one of his flagship initiatives — despite tariffs and pressure on businesses to invest in American factories.
“Announcements are what people say they’re going to do, but dollars spent is what’s actually happening,” said Didi Caldwell, chief executive of Global Location Strategies, which helps companies identify factory sites.
“From where we’re standing, we are not seeing signs of a manufacturing renaissance in the US.” (…)
Recent increases in US manufacturing output appeared to be driven less by confidence than by fears over rising prices and domestic and geopolitical uncertainty, added Chris Williamson, S&P Global’s chief business economist. (…)
“It isn’t reflecting the true health of the manufacturing economy, and it’s more worrying than it is encouraging.” (…)
Trafigura warns oil at ‘inflection point’ as Iran war stokes bumper half-year profits
Commodities trader Trafigura has warned that global energy markets are at an “inflection point” that could send prices sharply higher as it reported near-record first-half profits boosted by the war in the Middle East. (…)
Trafigura warned markets against complacency, with chief economist Saad Rahim arguing that the world had largely run through its “buffers” of fuel inventories and now stood “at an inflection point”.
The war in the Middle East has caused a production loss of about 14mn barrels per day, compared with pre-conflict levels, according to Rahim, who added that the price response did not reflect the magnitude of the energy crisis.
“The factors that have contained prices so far — elevated inventories, floating cargoes, co-ordinated SPR [strategic petroleum reserve] releases, a shoulder season, and demand destruction across Asia and Africa — have bought the market time, but are not a solution,” Rahim wrote in the report.
He pointed to low US petrol inventories as a particular concern, noting that these inventories are being drawn down at a record pace. Even if a peace deal between the Trump administration and Tehran was reached soon, “restoring production and shipping flows to pre-conflict levels will, by most estimates, take months, not weeks”,
Rahim added. Trafigura chief executive Richard Holtum echoed Rahim’s view, saying “the pressures that have built up across commodity markets and global supply chains in recent months will take time to unwind”. (…)
Oil inventories have helped withstand the supply shock to date. They exist for occasions just such as this. But the US can’t draw down much more: (John Authers)
Ed Yardeni:
Yesterday, we raised the caution flag, suggesting a possible pullback over the next few weeks. We are concerned about warnings from Exxon and Chevron executives that global crude oil inventories are so low that the crude oil price could spike to $150 a barrel unless the war ends very soon.
We also expect the FOMC to pivot from an easing bias to a tightening bias at the committee’s next meeting later this month. We then expect the FOMC to raise the federal funds rate by 25bps in July. The financial markets are also expecting a rate hike, but late this year.
The SpaceX IPO should be a big hit because everyone knows Wall Street has bent the rules to ensure the stock price soars initially. However, that could cause lots of volatility if a price spike triggers a wave of profit-taking.
Two charts on explosions. There is a chicken and egg question here, isn’t there?
Stocks drive record share of American wealth
A record 33% of the total wealth of the U.S. household sector was in stocks at the end of 2025, according to Federal Reserve data.
- That beats the ~30% during the meme stock-and-SPAC mania of 2021.
- And tops the ~27% reached in Q1 2000, just as the internet boom peaked.
“The willingness of households to hold a rising portion of their total financial assets in equities [has] made retail investors overall an important driver of the bull market in equities in recent years,” JPMorgan analysts wrote in a report late last month.
- Of course, that willingness hinges, in part, on how well stocks — and by extension, the Americans who own them — have done.
- Between the end of 2024 and 2025, the value of household portfolios soared 18%, or $10.31 trillion, to $67.77 trillion.
- That stockpile of stock market riches is likely at new records right now, after the S&P 500’s 10% rise so far this year.
In total, the country’s household equity assets are massive. But those holdings aren’t spread uniformly among all Americans.
- The richest 10% of American households owned about 87% of that total household stock market wealth, according to the Federal Reserve.
This uneven distribution helps explain some of the peculiar features of the current economic and political environment.
- For instance, the so-called K-shaped economy, in which GDP growth is increasingly reliant on spending by the wealthy, is likely driven in part by wealth effects of stock market gains for these folks.
- In other words, the rich seem to be feeling especially flush and are willing to spend.
- Meanwhile, 90% of the population hasn’t benefited from the booming market — even as relatively high inflation shrinks their real disposable income.
Also:
But also this:
Data: Goldman Sachs Investment Research; Finra; Note: Net margin debt is margin extended to customer securities accounts, after taking account of cash and unused remaining margin credit balances; Chart: Matt Phillips/Axios
And that:
BTW:
What the U.S. Has Accomplished in Iran The regime is much weaker, and time is on the side of the U.S. and its allies that want a more stable region.
By Condoleezza Rice in the WSJ:
The war against Iran has been a limited war, and its outcome is likely to be inconclusive. But it has achieved enough to produce a far better Middle East.
It drew America, Israel and the Arab states closer together through defense cooperation and intelligence sharing. In this regard, Israel has never been more secure. (…)
The war demonstrated that the Iranian regime’s leaders were physically vulnerable to U.S. military power and allied intelligence. It also showed that although Iran can close the Strait of Hormuz, that leverage is limited, as the U.S. blockade confronted Iran with the prospect of severe economic damage in return. (…)
It showed that China is no friend of the Arab world, as Beijing watched from the sidelines as Iran attacked the economic infrastructure of the region. (…)
Most important, along with Operation Midnight Hammer last June, Operation Epic Fury set back Iranian nuclear ambitions significantly. It will be a long time before Iran can build a viable nuclear weapon. (…)
In sum, Iran is far weaker today than it was in February. No amount of Iranian propaganda can mask this reality. America’s near-term goals should be to keep it in that weakened state, to strengthen the region’s political realignment, and to make certain that President Trump’s promise that Iran will never possess a nuclear weapon is fulfilled. (…)
Strategic patience is hard, and it isn’t always satisfying. But time is on the side of the U.S. and its allies. Reaching no deal is fine. Reaching a bad deal isn’t.
This is a new day in the Middle East, though it isn’t one without clouds. No American president has had a better chance to build a different and more stable region. It may just take a little more time.
Maybe you should also listen to this PBS video. Robert Kagan has a much different view of the US accomplishments in Iran:
Meanwhile:
Trump’s empire of debt This century the US has embarked on wars of choice and borrowed more to pay for them. That might not end well
(…) The conflict in Iran has been costing an estimated $2bn a day in short-term direct costs. The ratio of US public debt to GDP is set to breach its historic post-second world war high. And President Donald Trump has submitted to Congress a national defence budget request for 2027 of an astonishing $1.5tn, double the figure for 2020.
That number includes nothing for Trump’s latest war of choice. Suddenly the risk of overstretch looks very real — both to the US’s friends and to its foes. (…)
The US is still the world’s biggest economy and most potent military power. Its defence budget in 2025 was over $900bn, equivalent to 35 per cent of total global defence spending and more than three times the defence budget of China, the next most powerful military actor.
The American economy is notable for its high productivity and an impressive capacity for innovation, not least in AI. The question, then, is what could undermine the country’s otherwise winning formula for protracted hegemony.
The most plausible answer is costly wars and unstoppable surges in deficits and debt — a combination aggravated by Trump’s erratic foreign policymaking. (…)
Linda Bilmes of the Harvard Kennedy School notes that since the September 11 2001 attacks the funding pattern of US military conflicts in Iraq, Afghanistan and the wider region has been unprecedented.
“For the first time since the American Revolutionary War,” she wrote recently, “costs were paid for almost entirely by debt.” (…)
Against total current US government debt held by the public and federal agencies of about $36tn, this guns-and-butter tally amounts to fiscal incontinence on a very grand scale. (…)
The US Treasury’s interest bill has ballooned from 1.5 per cent of GDP in 2021 to more than 3 per cent today. The US deficit is currently running at nearly 6 per cent of GDP. There is no likelihood that this will come down significantly under Trump, despite promises by Treasury secretary Scott Bessent to halve it by the end of the president’s term.
Nor is the deficit likely to fall much under Trump’s successors because there is a structural deficit bias built into US politics. (…)
The lesson is clear, as Alan Auerbach, an economist at the University of California, Berkeley, recently argued in the IMF’s F & D Magazine: “The key to fiscal consolidation is bipartisan agreement. Neither party can then blame the other for short-term outcomes voters may not like.”
But with increasingly polarised politics there is no prospect of a bipartisan attempt to solve the fiscal problem. (…)
Conventional wisdom holds that there is no realistic alternative to the dollar. The Eurozone, China and Japan do not have deep, liquid government bond markets capable of providing safe assets to the world on the requisite scale.
But foreign investors are now moving out of Treasuries because of the debt problem, threats to the independence of the US Federal Reserve, the weaponisation of the dollar through financial sanctions and the erosion of political checks and balances under Trump.
In other words the markets are finally buying into the overstretch story. For their part the leading credit rating agencies have downgraded the US: S&P as early as 2011, Fitch in 2023 and Moody’s in 2025.
Until relatively recently, the largesse of monetary authorities was crucial in funding big increases in borrowing by the US and other rich countries. (…)
But central banks have recently been unwinding their balance sheets, running down the dollar component of their reserves and looking for alternatives including gold, commodities and the more liquid currencies of smaller advanced countries.
Indeed, a report by the European Central Bank showed this week that gold had now replaced US Treasuries as the world’s top reserve asset. By the end of last year bullion accounted for 27 per cent of all global central bank reserve assets, up from 20 per cent a year before. Treasuries fell from 25 to 22 per cent over the same time.
This leaves a gap that has been substantially filled by hedge funds, mainly American owned but often counted as foreign investors because of their bases in tax havens such as the Cayman Islands.
Many own Treasuries as part of highly leveraged “relative value trades”, financed by short-term borrowing that has to be constantly rolled over.
William White, former chief economist of the Bank for International Settlements, points out that this works well — until it does not. White argues that the purchase of government debt by non-bank institutions such as hedge funds depends in turn on their access to short-term financing such as the repo market.
He adds: “Should any disturbance interrupt that access, as in March 2020 [during the Covid-19 pandemic] or April 2025 [when Trump announced swingeing tariffs], an intense deleveraging spiral could easily follow.”
Recent shocks from hedge fund margin and collateral calls have made the Treasury market more fragile and a potential source of systemic risk.
Although the benchmark 10-year Treasury yield remains roughly where it was at the beginning of Trump’s second term, the odds are rising that his administration could find itself confronting debt market turmoil of the kind that toppled former UK prime minister Liz Truss after her unfunded tax-cutting “mini” Budget in 2022.
The Federal Reserve could then be obliged to buy Treasuries to prop up the market, perpetuating a morally hazardous boom and bust cycle in which investors assume the central bank will always come to the rescue when markets slump. (…)
White also worries about fiscal dominance — a phenomenon in which the central bank cannot raise interest rates to meet its inflation target because of the punishing servicing cost of high, short-term public debt. This in turn undermines price stability.
Another possible concern is financial repression, where the government forces banks and other financial institutions to buy its IOUs at below-market interest rates.
White foresees in the longer term a stagflationary world marked by the formation of two blocs, one dollar-based, the other renminbi-based with the Chinese currency being backed increasingly by gold.
A tangible step in this direction is the development of payment systems that do not rely on the dollar. Perhaps the most notable of these is the central bank digital currency platform mBridge, for which the chief technological input has been provided by the People’s Bank of China. (…)
Carstens, Knot and Claessens add: “While we do not predict an imminent crisis — the timing of such events is impossible to call — we do find that warning signs are multiplying and the window for preventive action is narrowing.”
The wisdom of the late Rudiger Dornbusch of MIT is relevant here. He famously remarked that “in economics, things take longer to happen than you think they will, and they happen faster than you thought they could”.
Barry Eichengreen, a professor at the University of California, Berkeley, draws a telling parallel in his latest book between the currency of Trump’s America and that of Nero’s Rome.
The denarius served as an international currency across the Roman empire. Nero resorted to debasement, reducing the silver content of the denarius, in a desperate effort to finance his ambitious programme of canal building, the reconstruction of Rome following the great fire of 64AD and the building of his extravagant 300-room Domus Aurea palace — all this while prosecuting costly wars on multiple fronts.
It was a classic case of imperial overstretch and marked the beginning of the protracted erosion of Rome’s economic and military primacy.
Louis XIV, the warmongering, profligate Sun King of France, apologised on his deathbed for having “loved war too much . . . and spent too much”.
While the world well knows there is zero likelihood of any recantation from the unapologetic 47th president, such an admission would make a fitting envoi for Trump.
But perhaps Trump’s real legacy will be the debt he, like his predecessors, has accumulated — and how it has undermined American power.
In 2016, just FYI:
“You’ve taken business bankruptcies six times.” –Hillary Clinton
“On occasion – four times – we used certain laws that are there.” –Donald Trump
PolitiFact uncovered two more bankruptcies filed after 1992, totaling six. Trump Hotels and Casinos Resorts filed for bankruptcy again in 2004, after accruing about $1.8 billion in debt. Trump Entertainment Resorts also declared bankruptcy in 2009, after being hit hard during the 2008 recession.
Why the discrepancy? Perhaps this will give us an idea: Trump told Washington Post reporters that he counted the first three bankruptcies as just one. (WaPo)