Below-the-radar services report could show first cracks in economy from tariffs

CNBC

05-08-2025

The jobs report rocked Wall Street on Friday . But there's another report that might put even more pressure on markets. The July reading of the Institute for Supply Management's services index is set for release at 10 a.m. ET. Economists polled by Dow Jones expect a print of 51.2, indicating the U.S. services sector expanded. But why would this little-known affect the market? Here's what CNBC economics editor Jeff Cox had to say: The ISM services index provides a snapshot in real time for activity across the U.S. services sector, which comprises about 70% of all economic activity. As inflation runs above the Federal Reserve's 2% target, the report can show any evidence that tariffs are both pushing up prices and restraining demand and output. If the data shows a sharp rise in prices paid or slowing new orders, for instance, it may suggest that tariffs are starting to bite and could complicate the Fed's ability to start lowering interest rates. Indeed, tariff worries aren't going away. Despite the U.S. reaching some agreements on trade, tensions with India have increased — with President Donald Trump threatening even higher tariffs on the country because of its purchases of Russian oil. Switzerland is also scrambling persuade Trump to lower duties on Swiss products. That said, the impact from tariffs hasn't seeped into U.S. economic data just yet. All that could change with Tuesday's report. Any weakness in the report "will only exacerbate concerns that the U.S. economy is on the precipice of a more dramatic slowdown," wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. "Notably, a consensus print would mark the second consecutive increase in the headline index, and first occurrence of back-to-back increases since fall 2024. With payrolls already in hand, we see an asymmetric balance of risks around the sentiment update." JPMorgan's trading desk also noted that "we likely are at the beginning of feeling the impact of the trade war. From here, inflation data is more important than growth data because the Fed could find itself in a situation where growth deteriorates … but inflation has increased to an uncomfortable level, leaving the Fed paralyz[ed] until we see a more significant change in the data." Bottom line: Set your alarm for 10 a.m. ET. ISM's report could send shockwaves up and down Wall Street.