Key Points

  • The U.S. services sector expanded for the 10th consecutive month in April, despite tariffs imposed by the Trump administration and planned cuts to federal spending.
  • The ISM services index rose to 51.6%, up 0.8 percentage points from March, above the 50% threshold indicating growth; the prices index rose 4.2 percentage points month-over-month, the highest since January 2023.
  • Steve Miller, chair of the ISM Services Survey Committee, said respondents were more focused on the actual pricing impact of tariffs rather than uncertainty and future pressures; meanwhile, federal agency budget cuts continue to weigh on business, but overall results are improving.

In-Depth Analysis

The services sector contributes more than two-thirds of U.S. economic growth. Last month, when President Trump announced the highest tariffs in decades, services were not included in the scope of the increases—most trading partners faced a 10% baseline import tariff, while Chinese imports were subject to a 145% tariff.

However, Trump said on social media on Sunday (April 27) that he has authorized a 100% tariff on films shot outside the United States. In his post, he wrote: "The American film industry is dying at a very fast rate." He said other countries are offering various incentives to try to attract American filmmakers and studios, calling it a "coordinated effort" that poses a threat to U.S. national security. "Hollywood and many other parts of the United States are being hit very hard."

For years, the United States has maintained a trade surplus in services such as tourism, financial services, information technology, and healthcare. According to data from the U.S. Bureau of Economic Analysis, the services sector recorded a surplus of $293.3 billion last year.

ISM data showed that 11 service industries reported growth in April, including arts, entertainment, and recreation; retail trade; healthcare and social assistance; and transportation and warehousing. Meanwhile, six sub-sectors, including agriculture, finance and insurance, construction, and public administration, contracted.

One survey respondent in public administration told ISM: "Due to the ongoing trade war and threats to federal program funding, our business is in a state of crisis and uncertainty."

Trump has said tariffs will attract foreign investment, revitalize manufacturing, improve U.S. fiscal prospects, and strengthen national security. Treasury Secretary Scott Bessent said in a speech on Monday (April 28): "The goal of our trade policy is to give great American workers and businesses a level playing field. On a level playing field, American industry can beat all challengers." He added: "Since he (Trump) took office in January, companies have pledged trillions of dollars in investment in the U.S. economy. President Trump has secured more investment for America in 100 days than President Biden did in his entire four-year term."

However, many economists believe that in a trade war triggered by high and broad tariffs, inflation could rise, and U.S. manufacturing is unlikely to expand. Additionally, they expect consumers to bear most of the cost of import tariffs.