More signs of softening

Economic data releases continue to show signs of weakening. The latest ISM services index, which gauges nonmanufacturing business activity, fell below expectations to 50.1. That’s nearly on top of the dividing line between expansion and contraction within the service economy. The decline was broad-based and consistent across views on business activity, new orders, and employment. Unsurprisingly, tariffs were the most common topic among respondents as panelists remarked, “tariffs are now starting to show up in pricing,” and that “anticipation of the final tariff impacts is resulting in delayed planning for next fiscal year purchases.”

That same cooling trend was evident in last week’s labor data. Initial jobless claims increased again to 226,000, from 218,000 in the prior week. Continuing claims climbed to their highest level since November 2021, signaling increasing challenges regaining employment.

Following a string of weaker data over the past few weeks, calls for the Federal Reserve to cut rates in September have intensified. We’ll see what this week’s inflation data reveals as it offers another look into the developing tariff impacts.