US private payrolls growth slows sharply in May
Businesses in the construction industry said "tariff variability has thrown residential construction supply chains into chaos," adding that "major heating, ventilation and air conditioning equipment manufacturers are passing on their cost increases due to higher refrigerant and steel commodity prices."
They also noted that "planning is difficult for community projects that could be scheduled for the next 22 to 30 months."
Trump on Tuesday doubled steel and aluminium duties to 50%. Businesses in the information sector said tariffs were a challenge "as it is not clear what duties apply," adding "the best plan is still to delay decisions to purchase where possible." Transportation and warehousing businesses said the import duties had "increased the cost of doing business."
The White House's unprecedented campaign to slash spending also impacted purchasing decisions by companies in the healthcare and social assistance industry. But tariffs are boosting demand for retailers as some customers pull purchases forward to avoid higher prices. Demand for data centers was driving activity for businesses in the utility industry.
Stocks on Wall Street were largely flat. The dollar eased against a basket of currencies. U.S. Treasury yields fell.
WEAK ORDERS
The ISM survey's new orders measure dropped to 46.4, the lowest reading in nearly 2-1/2 years, from 52.3 in April, likely as the boost from front-running related to tariffs faded. Data on Tuesday showed the new light vehicle sales rate slumped in May by the most in about five years.
Services sector customers viewed their inventory as too high in relation to business requirements, which does not bode well for activity in the near term. Backlog orders were the lowest in nearly two years.
Suppliers' delivery performance continued to worsen. This, together with lengthening delivery times at factories, points to strained supply chains that could drive inflation higher through shortages. Businesses are also seeking to pass on tariffs, which are a tax, to consumers.
That effort was corroborated by a report from the New York Federal Reserve showing the majority of businesses in its district said they had passed on at least some of the tariffs in the form of higher prices in May. Companies also flagged considerable confusion and uncertainty in navigating the duties.
The ISM survey's supplier deliveries index for the services sector rose to 52.5 from 51.3 in April. A reading above 50 indicates slower deliveries. A lengthening in suppliers' delivery times is normally associated with a strong economy. Delivery times are, however, likely getting longer because of supply-chain bottlenecks.
That situation was reinforced by a surge in the survey's measure of prices paid for services inputs to 68.7, the highest level since November 2022, from 65.1 in April. Most economists anticipate the tariff hit to inflation and employment could become evident in the so-called hard economic data by this summer.
Services sector employment picked up. The survey's measure of services employment rose to 50.7 from 49.0 in April. Some companies said "higher scrutiny is being placed on all jobs that need to be filled." The index is generally consistent with a steadily cooling labor market.
Economists shrugged off the release on Wednesday of the ADP National Employment Report, which showed private payrolls increased by only 37,000 jobs in May, the smallest gain since March 2023, after a rise of 60,000 in April. They noted ADP had a poor record predicting the government's closely watched employment report.
The government is expected to report on Friday that nonfarm payrolls increased by 130,000 jobs in May after advancing by 177,000 in April, a Reuters survey of economists showed. The unemployment rate is forecast to hold steady at 4.2%.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)
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