U.S. Services Sector Slows in June but Hiring Returns to Growth

06 July 2026

America's services sector remained on solid footing in June, though its pace of growth eased slightly as businesses adjusted to softer demand and lingering economic uncertainty. At the same time, the industry delivered an encouraging surprise by returning to job creation after three consecutive months of declining employment, offering another sign that the labor market continues to show resilience despite broader signs of a cooling economy.

According to the latest survey from the Institute for Supply Management, the U.S. services Purchasing Managers Index slipped to 54.0 in June from 54.5 in May. Any reading above 50 indicates expansion, meaning the nation's largest economic sector continues to grow even as momentum has slowed modestly. Economists say the figures point to an economy that is still expanding but at a more measured pace than earlier in the year.

The slowdown follows an unusually strong period of activity in May, when businesses rushed to place orders amid concerns that conflict in the Middle East could disrupt global supply chains and increase energy prices. As geopolitical tensions eased following a fragile ceasefire and oil prices retreated from recent highs, much of that urgency faded, allowing business activity to return to a more normal rhythm.

One of the report's brightest developments came from the employment index, which climbed to 51.2 after spending the previous three months below the growth threshold. The improvement suggests service companies have resumed hiring, even if cautiously, helping reinforce the view that employers remain reluctant to reduce staffing despite slower economic growth. The rebound also aligns with broader labor market trends showing that layoffs remain relatively limited while hiring continues at a slower but sustainable pace.

New business orders continued to increase during June, although they also cooled slightly compared with the previous month. The new orders index declined to 55.1, indicating that customer demand remains healthy but is no longer accelerating at the same rapid pace seen earlier this year. Businesses responding to the survey reported that clients remain willing to spend, although many are becoming more selective as higher living costs continue affecting purchasing decisions.

Inflation pressures also showed signs of easing. The prices paid index fell to 67.7 from 71.3 in May, marking its lowest reading since February. While companies are still paying elevated prices for many goods and services, the decline suggests some of the cost pressures created by recent spikes in oil and commodity prices have begun to moderate. Businesses nevertheless reported that certain products, particularly those connected to artificial intelligence infrastructure such as semiconductors and data center equipment, continue experiencing strong demand and elevated prices.

Supply chains remain another area of gradual improvement. Supplier delivery times continued to lengthen, though at a slower pace than in previous months. The supplier deliveries index edged lower to 54.4, indicating that while obtaining certain materials still requires patience, conditions are becoming more manageable as transportation networks stabilize and global shipping disruptions ease.

Despite the positive employment figures, economists caution that the overall economy continues showing signs of moderation. Consumer spending has softened, the U.S. trade deficit has widened, and economic growth estimates for the second quarter have been revised lower. The Federal Reserve Bank of Atlanta's GDPNow model estimates annualized economic growth of approximately 1.2 percent for the second quarter, compared with 2.1 percent during the first three months of the year.

The latest services data arrives at an important moment for financial markets and Federal Reserve policymakers. Although inflation has eased from its earlier peaks, price pressures remain above the central bank's long term target. At the same time, slower economic growth argues against aggressive monetary tightening. The combination of steady expansion, improving employment, and moderating inflation leaves policymakers balancing the need to control prices without unnecessarily slowing the broader economy.

Industry experts note that the services sector accounts for roughly two thirds of U.S. economic activity, making its performance one of the most closely watched indicators of overall economic health. Continued expansion, even at a slower pace, suggests businesses and consumers remain active despite higher borrowing costs and ongoing global uncertainty.

June's report ultimately presents a picture of cautious stability. Growth has slowed from the stronger pace recorded earlier in the year, but businesses continue expanding, hiring has resumed, and inflationary pressures are gradually easing. While challenges remain, particularly around consumer spending and global risks, the nation's largest economic sector appears to be navigating those headwinds without losing its footing.