Dive Brief:

• U.S. companies slowed hiring last month and activity in the service industry fell, according to data released Wednesday, signaling that the initial bite from Trump administration tariffs may have begun harming core components of the economy.
• An index for service sector prices rose in May and new orders declined, as both gauges recorded levels unseen since late 2022, the Institute for Supply Management said in a report on its services index. Meanwhile, hiring slumped to a two-year low, according to a report by ADP Research, prompting President Donald Trump to redouble his pressure on Federal Reserve Chair Jerome Powell to cut the benchmark interest rate.
• “ADP NUMBER OUT!!! `Too Late’ Powell must now LOWER THE RATE,” Trump said in a social media post minutes after release of the report on hiring. “He is unbelievable!!!” Trump said.

Dive Insight:

Economic data has sent mixed signals in recent months as economists predict that Trump tariffs — including a 10% baseline import levy against virtually all U.S. trade partners — will slow economic growth, stall hiring and spur inflation.

Inflation eased in April to the slowest annual pace since February 2021, with the consumer price index rising a less-than-expected 0.2% and 2.3% over 12 months, the Bureau of Labor Statistics said last month.

Also, the U.S. hiring rate rose in April to 3.5% from 3.4% in March, and job openings increased to 7.4 million from 7.2 million the prior month, the Labor Department said Tuesday, describing results of its monthly Job Openings and Labor Turnover Survey.

“The labor market still appears broadly healthy,” Atlanta Fed President Raphael Bostic said Tuesday in a quarterly report.

“Layoffs and unemployment remain at low levels, and there are no glaring signs of serious labor market deterioration,” he said, while noting “some indications of potential weakness” such as lengthening job searches for those seeking employment.

Yet the ADP report for May suggests that the labor market is losing steam, ADP Chief Economist Nela Richardson said. “After a strong start to the year, hiring is losing momentum,” she said.

In another mixed signal on the economy, an S&P Global survey of service companies released Wednesday indicated that activity in the sector rose last month.

“That said, the improvements come from a low base, following a very gloomy April, which saw growth nearly stall as confidence sank to a two-and-half year low,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

“Reports from companies underscore how uncertainty about the policy outlook continued to act as a deterrent to expansion plans in May,” he said. “Output growth and confidence consequently remain subdued by standards seen last year.”

Weakness in the service sector in May as measured by ISM reflects the murky business outlook due to the hard-to-predict end point for U.S. trade policy, according to Steve Miller, chair of the ISM survey committee.

The decline in service sector activity “is not indicative of a severe contraction, but rather uncertainty that is being expressed broadly among ISM Services Business Survey panelists,” he said in a statement.

“Respondents continued to report difficulty in forecasting and planning due to longer-term tariff uncertainty and frequently cited efforts to delay or minimize ordering until impacts become clearer,” Miller said.

Aligning with warnings by economists, the Fed said Wednesday that business activity edged down recently as companies try to navigate the hazy landscape in trade and other federal policies.

“All districts reported elevated levels of economic and policy uncertainty, which have led to hesitancy and a cautious approach to business and household decisions,” the central bank said in its so-called Beige Book report compiled from all 12 Fed district banks.

Imposition of the highest U.S. tariffs since the 1930s will stoke inflation, and uncertainty from other Trump administration policies will slow U.S. economic growth to 1.6% this year from 2.8% in 2024, the Organization for Economic Cooperation and Development forecast Tuesday.

A big decline in immigration and large cuts to the federal workforce will also inhibit growth, the OECD predicted in a quarterly report on the world economy.