On July 24, 2025, S&P Global’s PMI surveys revealed a sharp divergence in sectoral momentum: the Composite PMI jumped to 54.6, buoyed by strong service sector growth, while the Manufacturing PMI slipped to 49.5, signaling contraction in the industrial segment.
This bifurcated picture underscores an economy running on mixed cylinders. The booming services sector continues to lift overall output—its flash PMI surged to 55.2, a seven‑month high, up from 52.9 in June. Meanwhile, manufacturing faltered, weighed down by rising input costs, disrupted supply chains, and new tariffs imposed by the Trump administration.
Companies surveyed attributed much of the inflationary pressure in goods-producing industries directly to fresh tariffs. Approximately two‑thirds of manufacturers reported tariff‑driven price hikes, with nearly 40% of service firms also feeling the pinch. Factory input‑price indices have climbed to levels not seen since August 2022, as duties on steel, aluminum, automobiles, and goods from China, Canada, Mexico, Japan, and the EU take their toll.
Rising import costs have already filtered through to producer price pressures. Core import prices—excluding food and fuel—rose by 0.2% in June, while consumer prices climbed to an annual rate of 2.7%, up from 2.4% in May. A Deutsche Bank analysis found that U.S. importers, not foreign exporters, are shouldering most of the tariff burden—raising concerns that higher costs could soon be passed on to consumers.
S&P Global Chief Economist Chris Williamson cautioned that the end of stockpiling ahead of tariff hikes may signal slower growth ahead, with nominal inflation potentially pressuring margins—and possibly prompting the Federal Reserve to keep rates elevated longer than expected.
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The broader economic implications are notable. S&P estimates annualized GDP growth could reach 2.3% in Q3, up from 1.3% in Q2, but forecasts growth slowing to around 1.0% for 2025 overall. Business sentiment has softened, and manufacturers continue to cut jobs: employment indexes in the sector fell to historically low levels during early July.
Despite the manufacturing slump, overall private-sector resilience is underpinned by strong services performance—including professional services, IT, hospitality, and logistics—which continue expanding robustly and helping offset industrial weakness.
However, sustained inflation from input cost pressures and trade disruptions may tip the balance. Some Fed officials and Treasury advisers argue the tariff impact is a one‑time shock. Others warn it may extend, especially as businesses pass costs along gradually—particularly in sectors like consumer goods, appliances, apparel, furniture, and electronics.
The Fed’s Beige Book, released mid‑July, flagged firms grappling with recruiter shortages and tariff‑driven input price pressures, leading some businesses to raise or delay pricing and hiring decisions. Many firms cited uncertainty around trade policy and workforce availability.
In summary, while private‑sector growth remains solid overall, the divergence between recession‑risk manufacturing and booming services highlights growing imbalances. Tariffs are reshaping the inflation landscape—lifting input prices, squeezing margins, and adding heat beneath core inflation—especially in the goods sector.
Looking ahead, without legislative intervention on trade policy or tariff relief, these cost pressures could persist and gradually affect consumer prices. The Federal Reserve is poised to stay cautious, potentially extending tighter monetary policy due to persistent inflation risk. For manufacturers, the coming months may bring further contraction, as supply chains adjust and demand remains dampened by higher costs.
