Two PMI surveys, one warning: ISM's 53.6 and S&P Global's 51.0 both point to slowing US services momentum in April 2026 as prices hit a three-year high and new orders deteriorate sharply.

Key Highlights

  • ISM Services PMI eased to 53.6 in April, remaining above its 12-month average of 52.5 for the 22nd consecutive month of expansion
  • New Orders Index dropped 7.1 points to 53.5, the sharpest single-month decline in recent data, as March's front-loading effect unwound
  • Prices Index held at 70.7, matching its highest level since October 2022, with no commodities reported down in price for a second straight month
  • Employment contracted for a second consecutive month at 48.0, despite a 2.8-point recovery from March
  • A concurrent S&P Global survey registered a far weaker 51.0, with new business falling into contraction for the first time in two years

Expansion Continues, Momentum Slows

The US services sector remained in expansion in April 2026 for the 22nd consecutive month, according to data released on May 5, 2026, but the latest ISM Services PMI report reveals a sector navigating genuine headwinds. The headline index eased marginally to 53.6 from 54.0 in March, broadly in line with market expectations of 53.7 and 1.1 percentage points above its 12-month average of 52.5. Based on the historical relationship between the Services PMI and output, the April reading corresponds to an annualised GDP growth rate of approximately 1.7%.

Services account for roughly 90% of the US economy, making this report one of the most consequential monthly data releases for assessing the broader economic trajectory. The April figures confirm that the sector has not buckled under the combined weight of the Iran war, elevated energy costs, and tariff-driven input price increases. However, the composition of the report tells a more cautious story than the headline suggests.

Business Activity Rises, But Driven by Backlog Drawdown

The Business Activity Index rose 2 points to 55.9, providing the report's most constructive number. Fourteen of 18 surveyed industries reported output growth in April, up from thirteen in March.

The source of that production increase warrants scrutiny. The Backlog of Orders Index, while still in expansion at 53.0, declined 0.6 points from March. The rise in output appears partly attributable to firms working through accumulated order backlogs rather than responding to fresh demand, a distinction that matters considerably for the forward outlook.

New Orders: The Report's Defining Weakness

The New Orders Index dropped 7.1 percentage points to 53.5 in April, the sharpest single-month decline in recent months. While the index remained in expansion territory, the scale of the move is significant. ISM survey respondents had flagged in March that elevated ordering was partly pre-emptive, driven by expectations of further price increases. That front-loading dynamic appears to have largely played out by April.

Respondents noted that the Middle East conflict was simultaneously creating demand for some domestic products while causing hesitation on broader capital commitments. The Construction sector cited buyers sitting on the fence despite the spring selling season, while banking sector respondents noted customers pulling back as geopolitical uncertainty weighed on confidence.

Prices: Structurally Elevated With No Relief in Sight

The Prices Index held flat at 70.7 in April, equalling its highest reading since October 2022 and extending an uninterrupted run of monthly price increases to 107 consecutive months. All 18 surveyed industries reported higher input costs. No commodity was listed as down in price for a second consecutive month.

Fuel, diesel, gasoline, and freight costs were the most frequently cited pressures, directly linked to supply chain disruptions from the Iran conflict. Aluminum, copper, lumber, and software licensing continued multi-month escalation runs, compounded by White House tariff measures. ISM survey chair Steve Miller noted that petroleum-related cost increases have not yet fully passed through to end-product pricing, suggesting the Prices Index may remain structurally elevated for several months regardless of how the geopolitical situation evolves.

Employment Contracts for a Second Month

The Employment Index recovered partially in April, rising 2.8 points to 48.0, but remained below the 50-point expansion threshold for a second consecutive month. Construction, wholesale trade, utilities, and professional services reported hiring gains. Mining, retail, information, and education reported reductions.

Two consecutive months of services employment contraction represent a modest but notable shift. The services labour market has been a key stabilising factor through recent quarters of uncertainty. Sustained softness here, particularly if new order weakness persists into May, would carry more significant implications for consumption-driven GDP components.

What a Concurrent Survey Showed

Released the same day, the S&P Global US Services PMI registered 51.0 in April, recovering from a contractionary 49.8 in March but signalling only marginal growth. Both surveys pointed to slowing momentum, though S&P Global's reading was considerably weaker.

S&P Global's data was more pointed on demand. New business inflows fell into contraction for the first time in two years, with consumer-facing services including travel, recreation, and hospitality identified as the hardest-hit segments. Financial services demand also weakened, tied to uncertainty over interest rate trajectories and cooling real estate activity. S&P Global's chief economist assessed the data as consistent with GDP growing at approximately 1% annualised, meaningfully below ISM's implied 1.7%, and flagged that the breadth of price increases would put pressure on the Federal Reserve to act against entrenched inflation.

Conclusion: Resilience Confirmed, But the Forward Picture Is Less Comfortable

April's ISM data confirms that the US services sector has absorbed the initial shock of Middle East conflict and tariff-driven cost escalation without contracting. Expansion continues, backlogs are being worked through, and business activity strengthened on the month. But the 7.1-point drop in new orders, a second consecutive month of employment contraction, record-high price pressures with no near-term relief, and a far weaker reading from S&P Global's concurrent survey collectively suggest the sector is operating with diminishing forward momentum. Whether April marks a temporary demand recalibration or the beginning of a more sustained deceleration will depend on how the Iran conflict evolves, whether energy costs stabilise, and how aggressively the Federal Reserve responds to an inflation environment that both surveys confirm remains uncomfortably elevated.