TEMPE, Ariz. — The largest part of the American economy continued expanding in May, but beneath the encouraging headline lies a growing concern for workers: businesses are generating more sales without adding more employees.
New data released Wednesday by the Institute for Supply Management (ISM) showed that the U.S. services sector expanded for the 23rd consecutive month, highlighting continued economic resilience even as uncertainty surrounding inflation, interest rates, and global tensions persists.
The ISM’s closely watched Services Purchasing Managers Index (PMI) rose to 54.5% in May from 53.6% in April. Any reading above 50 indicates growth, making the report another sign that the service economy remains firmly in expansion mode.
At first glance, the numbers looked strong.
The survey’s measure of new orders climbed to 57.3%, while business activity increased to 57.7%, indicating healthy customer demand across industries ranging from healthcare and banking to retail and technology.
Businesses are clearly finding work.
The problem is they are not hiring people to do it.
The report’s employment index fell to 47.9%, marking the third consecutive month of contraction. It was also the only major component of the survey running below its twelve-month average.
That disconnect is becoming one of the defining economic stories of 2026.
Companies are growing.
Customers are spending.
Revenue is increasing.
Yet hiring remains sluggish.
The phenomenon reflects what economists increasingly describe as a “low-hire, low-fire” economy. Businesses are not conducting widespread layoffs, but they are also reluctant to expand payrolls.
Instead, many are attempting to generate more output from existing employees.
Part of that shift is financial caution.
After several years of economic uncertainty, many executives remain hesitant to commit to permanent labor costs. Higher wages, healthcare expenses, and benefit obligations have made hiring decisions more expensive.
Another factor is technology.
Across industries, companies are investing heavily in automation, software, and artificial intelligence tools designed to improve productivity. Rather than immediately adding headcount when demand rises, many businesses are first attempting to determine whether technology can handle additional workload.
The result is economic growth that feels different from past expansions.
Historically, rising orders and stronger business activity would have translated directly into job creation. Increasingly, that relationship appears to be weakening.
The report also contained another warning sign for policymakers.
The survey’s measure of prices remained elevated, indicating businesses continue facing higher costs for supplies and services.
Service-sector inflation tends to be particularly stubborn because it is driven heavily by wages, rents, insurance costs, and other expenses that do not decline quickly.
That creates a difficult challenge for the Federal Reserve.
On one hand, economic activity remains healthy and inflation pressures persist. On the other hand, hiring is slowing and labor-market momentum appears weaker than headline growth figures suggest.
The conflicting signals help explain why investors remain uncertain about the Fed’s next move.
Should policymakers focus on inflation and keep monetary policy tight?
Or should they become more concerned about a labor market that is no longer generating jobs at the pace many economists expected?
Those questions will become even more important when the government releases its official employment report later this week.
For workers, the report captures a frustrating reality.
The economy is growing.
Businesses are busy.
Customers are spending.
Yet finding a new job is becoming harder.
It is an economy that looks healthy on paper but feels far less dynamic to many Americans trying to advance their careers.
The services sector continues carrying the U.S. economy forward.
The question now is whether it can continue growing without bringing more workers along for the ride.
Wall Street — JBizNews Desk
© JBizNews.com All Rights Reserved. Reproduction or distribution without written permission is prohibited.
