U.S. services growth eases in June, hiring rebounds after slump

U.S. services activity cooled in June, but the labor side of the report turned brighter, with hiring moving back into expansion after three months of contraction. The Institute for Supply Management’s services index slipped to 54.0 from 54.5 in May, still comfortably above the 50 mark that separates growth from contraction and marking the 24th straight month of expansion.

The report pointed to a slower but still steady pace of demand. The Business Activity Index eased to 55.4 from 57.7, while the New Orders Index fell to 55.1 from 57.3. Even so, backlogs improved, with the Backlog of Orders Index rising to 54.9 from 51.3, a sign that companies were still working through enough incoming business to keep activity elevated. New export orders also moved back above the neutral line, rising to 50.4.

Hiring was the clearest upside surprise. The Employment Index climbed to 51.2 from 47.9, returning to expansion after three straight months of contraction. Steve Miller, chair of the ISM Services Business Survey Committee, said the reading reflected continued expansion and described the payroll rebound as “sustained and modest hiring.” For the Federal Reserve, that combination matters: softer demand growth and firmer job gains point to an economy that is cooling unevenly rather than rolling over.

Inflation pressure in services also eased a bit. The Prices Index dropped to 67.7 from 71.3, its first reading below 70 since February 2026. Supplier deliveries slowed further, with the Supplier Deliveries Index at 54.4 from 55.2, a pattern that can reflect firmer demand and longer wait times for inputs. ISM said all four subindexes that make up the composite PMI were above their 12-month moving averages, reinforcing the picture of a sector that is still expanding at a healthier-than-expected pace.

The June figures also carried a geopolitical imprint. A burst of earlier orders had been tied partly to businesses rushing to place orders amid the Middle East war, and the easing in June suggests that boost faded as oil prices moved back toward pre-war levels after the ceasefire and negotiations between the United States and Iran. A separate labor market report already showed payroll growth slowing sharply in June and unemployment at 4.2 percent, but the services data suggest households and businesses have not yet pulled back enough to trigger a broad downturn. With services making up more than two-thirds of U.S. economic activity, the message is one of moderation, not collapse.