For months, US economic data has shown resilience, with layoffs remaining low and business activity staying steady despite fears over policy uncertainty. But the tide may be shifting. Multiple data points this week have shown signs of slowing as a wide swath of tariffs has been in effect.
On Thursday, weekly filings for unemployment benefits hit their highest level since October 2024, adding to a slew of data showing a cooling economy leading into the Friday morning release of the May jobs report.
Earlier in the week, the Institute for Supply Management's Services PMI registered a reading of 49.9 in May, below the 51.6 seen in April. Readings above 50 for this index indicate an expansion in activity, while readings below 50 indicate contraction. May's data marked just the fourth time the services sector has fallen into contraction in the past five years.
Jefferies US economist Tom Simons wrote in a note to clients that the ISM services data likely reflects “more signs of a pause in activity rather than a steep contraction.”
“A broad pause is not a good thing, and the uncertainty that precipitated this pause has not shown any signs of lifting,” Simons wrote.
And it's not just one sector pressing pause as tariffs take hold. On Monday, the ISM's manufacturing PMI also showed contraction in May as imports hit their lowest level since 2009, with a wide swath of President Trump's tariffs taking hold.
Economists have reasoned that it's not just the tariffs themselves causing businesses to slow activity. It's the uncertainty of where policy — and eventually the broader economy — is headed in 2025. That includes the labor market: In May, the private sector added 37,000 jobs, the lowest monthly total in more than two years, per ADP data released Wednesday.
“When it comes to hiring, there's a hesitancy because of a wide level of uncertainty,” ADP chief economist Nela Richardson told Yahoo Finance during a call with reporters.
“We're in a situation now where businesses are facing a level of paralysis,” RBC Capital Markets economist Carrie Freestone told Yahoo Finance on Wednesday. “Nobody is wanting to ramp up hiring when they don't know what's going to happen down the line.”
The slowdown in hiring has likely led to an increasing number of workers staying unemployed for longer. Data from the Department of Labor released Thursday morning showed 1.904 million workers filed for continuing unemployment benefits in the week ending May 24. The data is hovering near its highest level since November 2021.
