The S&P Global final services PMI for June 2025 was 52.9, slightly down from the preliminary reading of 53.1 and lower than the previous figure of 53.7. The composite index also held at 52.9, just above the preliminary estimate of 52.8. The US service sector continues to grow and hire, but high price pressures may influence future monetary policy. The economy grew at about 1.5% annually in the second quarter, with strong demand leading firms to hire at their fastest rate since January.

Economic Challenges

However, some areas, especially exports and consumer services, are struggling, slowing overall economic growth. Concerns about government policies have caused uncertainty and reduced consumer confidence, impacting spending in services. In June, price pressures remained significant, with service inflation reaching its second-highest level in over two years due to rising costs from tariffs. While weak demand and competition have moderated these pressures, they could lead to increased consumer price inflation soon. Market reactions were limited, with the Federal Reserve’s year-end easing projected at 52 basis points, down from 62 basis points before the non-farm payroll data. The latest PMI report indicates that the services sector in the United States is still growing, but the momentum is weaker than earlier in the year. The final figures were slightly lower than initial estimates, suggesting that while activity is positive, expectations might have been slightly too high. Hiring is strong, reaching its fastest pace this year, indicating that businesses are still seeing enough work to justify additional staff. However, this growth is not evenly distributed. Businesses facing international markets or relying on consumer spending are encountering challenges, either due to unmet demand predictions or clients being cautious amid uncertain policy direction.

Persistent Inflation and Future Implications

Prices continue to rise, particularly in services. Recent data shows service inflation near multi-year highs, driven not by wages but by tariffs making inputs more expensive, which may soon affect consumers. This is especially evident in sectors where demand remains robust enough to avoid heavy discounting. While competition provides some relief, it is inconsistent. The data presents a clear message: the economy is not in crisis but faces significant constraints. Businesses are cautious, and clients are seeking more clarity before making commitments. Although growth exists, it relies on specific sectors rather than widespread strength. Yields changed only slightly following stronger-than-anticipated hiring data from the labor market. Futures indicate that expectations for rate cuts have been adjusted, suggesting a scenario where strong employment coexists with ongoing inflation in parts of the service sector. We’re closely monitoring this situation. Service inflation often lags behind, rising even as overall demand stabilizes. Therefore, we should be careful in interpreting the differences between robust employment figures and uneven consumer activity. Shifts in expectations—especially around policy announcements or inflation reports—are likely to drive market movements more than overall growth figures. Pay attention to sector differences and how currency values are influenced by tariff pressures. These factors will impact hedging decisions, pricing strategies, and overall market volatility. Focus on timing rather than just function—unexpected shifts in consumer spending data, not only job numbers, could provide more insights, especially if the Fed maintains its current course. Use this approach: identify where price pressures and labor data diverge. When employment remains steady but pricing power wanes, you’ll pinpoint where pressure is likely to rise next. Create your live VT Markets account and start trading now.

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