A Dangerous Services Sector Slump Now Puts Millions of Jobs at Risk for Struggling Families

The US services sector, which powers over 80% of our economy, just hit a rough patch. The ISM Services PMI fell to 49.9 in May, crossing below the 50 mark that signals contraction. New orders plummeted to 46.4, and business activity stalled at 50.0. This isn’t a minor hiccup. It’s a red flag for millions of workers in healthcare, hospitality, and education, whose jobs are now at risk. For families already stretched by rising costs, this slowdown could tighten the squeeze on their budgets.

This marks the first contraction since June 2024, a stark shift from the steady growth we’ve seen since the pandemic recovery. When the services sector falters, the impact spreads fast. Past inflationary periods, like the 1970s and early 2020s, showed how quickly families cut back on dining, travel, and personal care when economic uncertainty hits. With orders shrinking and activity flat, we’re staring at a potential slide toward broader economic trouble.

Some might downplay the concern, pointing to the employment index rising to 50.7, suggesting jobs are holding steady. But one month of job growth doesn’t erase the warning signs. A backlog of orders contracting at 43.4, negative GDP growth in Q1, and an inverted yield curve—a reliable recession predictor since the 1970s—paint a grimmer picture. Ignoring these signals would be reckless when so much is at stake.

What’s fueling this stumble? Inflation is a key culprit. The prices-paid index soared to 68.7, the highest since November 2022, driven by tariff uncertainties and rising input costs. For consumers, this translates to pricier childcare, medical care, and more. Surveys reveal 76% of households say their incomes can’t match price growth, and they expect prices to jump another 6.6% next year. This pressure is choking the demand that keeps services thriving.

So, where do we go from here? We can wait, hoping the market fixes itself, or we can act to protect workers and families. The choice is obvious. Bold, targeted policies are essential to stabilize demand and support those most vulnerable to this economic wobble.

Certain policymakers push a familiar playbook: slash government spending and strip away regulations to curb inflation. They argue deficits and rules like minimum wage laws drive up costs, proposing deep cuts, like 22% reductions to the Department of Labor’s budget. This approach is flawed and risky. History, from Reagan’s 1981 tax cuts to the 1982 Garn-St. Germain Act, shows austerity and deregulation often widen inequality while failing to tame inflation. Workers’ wages stagnated for years, while corporate profits soared.

Weakening labor protections or slashing agency budgets, such as those for OSHA or the Wage and Hour Division, would undermine job security when services workers are already vulnerable. Scrapping licensing or wage standards might cut costs for some firms, but it would flood the market with low-paying, unstable jobs. That means more families struggling to afford essentials, which further weakens demand for services like dining or travel. This strategy doesn’t strengthen the economy; it hollows it out.

Blaming spending or regulations also misreads the problem. The prices-paid index’s jump to 68.7 stems from tariff disruptions and supply chain issues, not worker wages or government programs. Corporate price increases and global trade tensions are the real drivers. Policies that punish workers and consumers miss the mark. We need solutions that tackle these root causes while supporting the people who keep the services sector running.

A better approach focuses on fairness and resilience. Targeted investments in workforce training, infrastructure, and aid for low-income households can steady the services sector. History offers clear examples: the New Deal’s public works programs and the 2008 Recovery Act’s investments propped up demand during tough times. These efforts created jobs and gave families the means to keep spending on services, from healthcare to hospitality.

Raising the federal minimum wage and expanding paid leave would boost workers’ incomes, directly lifting demand for services. Strengthening bargaining rights, rooted in the Wagner Act of 1935, would empower workers to secure fair wages, easing the wage-price pressures some fear. Protecting agencies like OSHA ensures safe workplaces, keeping workers productive. These aren’t luxuries; they’re investments in the economic engine of services.

The evidence supports this path. Consumer spending has stayed resilient in 2025 despite inflation, but it’s fragile. Only 29% of Americans now see inflation as their top worry, yet most are cutting back on travel and dining. Targeted support, like childcare subsidies or unemployment bonuses for service workers, could prevent sharper declines. Without it, we risk repeating the 1980s, when austerity crushed leisure and personal care spending for years.

The Federal Reserve’s role is critical, too. With core CPI near 3.0% and service prices climbing, the Fed kept rates at 4.25%–4.50% in May, signaling vigilance. This caution is wise, but overly tight policy could strangle demand further. The early 1980s Volcker era showed how aggressive rate hikes, while curbing inflation, sparked deep recessions. The Fed must weigh its 2% inflation target against the risk of pushing the services sector into a lasting slump.

Lawmakers have a responsibility to act as well. Prioritizing workers and consumers over corporate interests means funding health subsidies, infrastructure, and labor protections. These strategies have worked before, pulling us through past slowdowns. Dismissing them risks a recession that hits service workers and low-income families hardest. We can’t let that happen.

The services sector’s slip is a call to action. We have proven tools: targeted investments, stronger worker rights, and a balanced Fed approach. Will we use them to build a fairer, more robust economy, or let misguided cuts and inaction pull us backward? For millions of workers and families, the answer must be clear: we choose progress, equity, and resilience.