US services growth ‘stalling’ as recession looms large
Donald Trump’s tariffs are having a knock-on effect on growth in the US services, fresh data has suggested, as market uncertainty prompts business leaders to delay investment decisions.
The US president’s trade policies have confused firms in the sector despite exemptions from taxes on imports, S&P Global said on Monday.
April saw its lowest level of growth in business activity in nearly 18 months while confidence plummeted to its lowest level in two and a half years, according to the latest purchasing managers’ index (PMI).
Tariffs were also highlighted as a “key driver” of higher costs, putting firms under stress and forcing service providers to raise prices of products.
The US composite PMI fell to 50.6, pointing to a possible stagnation in the economy.
S&P global chief business economist Chris Eilliamson said the slump in US services, which includes technology giants Meta and Microsoft, was a “worrying backstory” to the focus on the slump in manufacturing.
“Business and consumer facing service providers alike, and especially financial services firms, are reporting markedly weaker growth prospects, citing intensifying uncertainty over the economic outlook amid recent tariff announcements and ongoing federal spending cuts,” he said.
“A key area of weakness is slumping exports of services, which is now falling at a rate not seen since 2022.”
A separate index by the Institute for Supply Management (ISM) found that services picked up slightly compared to March.
The spike in prices put the index at its highest level in two years, ISM said.
Matthew Martin, a senior US economist at Oxford Economics, said the ISM data on services suggested the sector was still performing better than manufacturing.
“The responses to this month’s report were less downbeat than last week’s manufacturing report, but concerns over tariffs’ impact on prices and changes in federal funding were top of mind,” Martin said.
“While business activity and new orders expanded in April, employment declined and hints that policy uncertainty may be feeding into weaker business hiring.”
New data comes as US GDP saw a contraction of 0.3 per cent in the first quarter of the year, with economists fearing the worst is yet to come.
Trump admitted on Sunday that a recession was possible, adding that “anything can happen”.
Apollo this week upped its US recession risk to 90 per cent while JP Morgan said the chances of a downturn this year stood at 60 per cent. Goldman Sachs estimated the risk of economic decline was 45 per cent.