US ISM services PMI beats, despite spreading impact from tariffs and slower hiring

US services sector activity continued accelerating last month, despite what appeared to be the spread of supply-side issues linked to the impact of Washington's tariffs on aluminium and steel and other levies targeting several of its main trade partners.

Not lost on some analysts either, a key gauge linked to levels of employment contained in the same report weakened.

The Institute for Supply Management's non-manufacturing sector Purchasing Managers' Index jumped by 0.5 percentage points in June to reach 59.1.

Economists had anticipated a dip from May's print of 58.6 to 58.0.

According to one survey respondent from the Construction sector, "Tariffs, freight [issues] and labor shortages continue to have an inflationary influence on costs."

It was a similar story in 'Other Services', with another respondent saying: "Domestically, we are still experiencing a shortage of transportation providers that is getting worse each month when retiring drivers or drivers moving into other opportunities are not being replaced.

"Internationally, there is a shortage of flat racks [that] has caused late shipments. The tariffs on steel and aluminum have also had some negative effects on our supply of material, but we have applied for exemptions."

The key sub-index tracking firms' new orders jumped by 2.7 points to 63.2, with another linked to the prices paid by firms retreating by 3.6 points to 60.7.

Employment levels also held-up, with the corresponding sub-index just 0.5 points lower at 53.6.

The results of the ISM's June survey covering manufacturing firms, published on 2 July, had appeared to show a widespread impact on activity from the looming imposition of tariffs.

Commenting on the release, Michael Pearce at Capital Economics surmised: "It wasn't all positive, however, with the employment index dropping back, to 53.6 from 54.1. That is consistent with services payroll growth slowing to around 150,000 in June, from 171,000 in May, which supports our below-consensus forecast that non-farm payrolls rose by 180,000 last month (data due out tomorrow.)

"Finally, as with the manufacturing report released on Tuesday, there was plenty of anecdotal evidence that tariffs were beginning to have an impact, but with the prices balance falling in June and new export orders rising, there is little sign that this is affecting the economy yet."