The Jobs Report Was Great. This Data Point Might Be Just as Important.

A scene from the floor of the New York Stock Exchange in late June. (NYSE)

U.S. stocks are looking to head into the holiday weekend on a high note, with the S&P 500 pushing new all-time highs, as investors bet on the growth prospects of President Donald Trump’s economic agenda and the possibility of Federal Reserve rate cuts.

A key data release over the holiday-shortened session, however, will test that momentum into the long weekend — although it might not be the jobs report.

The Bureau for Labor Statistics said 147,000 new hires were added to the economy last month, well ahead of Wall Street’s 115,000 forecast. Headline unemployment also eased to 4.1% from 4.2%.

But the Institute for Supply Management’s benchmark reading of economic activity across the services sector could be more important for assessing where the economy is going.

The reading, considered a comprehensive assessment of a sector that comprises around 70% of U.S. GDP, has been trending notably lower over the past three years, and slipped below the 50-point mark that separates growth from contraction in May.

The headline reading of 50.8 points for the month of June matched both Wall Street forecasts and the modest growth rate recorded in March.

ISM Chairman Steve Miller called the report “a welcome return to expansion” but cautioned that “slow growth and economic uncertainty were frequently referenced by respondents” in the survey.

The report also included data tied to hiring, new orders and, crucially, the prices services companies are paying for imports.

With the U.S. dollar suffering its biggest first-half decline since the 1970s, and still down more than 10% for the year against a basket of its global peers, the “price paid” input has been trending at the highest levels since 2023.

That is likely to keep inflation pressures elevated and justify the Federal Reserve’s reluctance to lower interest rates.

“Price increases impacting costs of operations were mentioned more frequently this month,” Miller said.

“Middle East tensions were a new subject of comments in June, but there was no indication of related supply chain disruptions, he said. “The most common topic among survey panelists continued to be concerns about impacts related to tariffs.”

Earlier this week, the ISM’s reading of the manufacturing sector showed another month of contraction as the brief flurry of activity tied to the front-running of tariffs earlier in the year reversed into the close of the second quarter.

A similar subset of prices that factories are paying for imported goods jumped to the highest level since early 2022, likely as a result of the spike in global oil prices tied to conflicts in the Middle East.

Beyond inflation pressures, the ISM services reading for June could also prove key to maintaining GDP growth momentum through the second quarter, and by extension the back half of the year.

The Atlanta Fed’s GDPNow tracker, which will be updated later Thursday, suggests a current quarter growth rate of 2.5%, followingthe 0.5% contraction over the three months ending in March.

“The economy was in low gear in the first half of 2025,” said Bill Adams, chief economist at Comerica Bank in Dallas.

But that doesn’t mean he expects the Fed to come through with a near-term rate cut to juice prospects over the second half.

“Given expectations for tariff-fueled inflation, slower labor supply growth, and more deficit-funded fiscal stimulus in the tax-and-spending bill, the Fed would need to see a significant deterioration of the job market to be persuaded to cut later this year,” he added.

In other words, you’re on your own now, kid.

Write to Martin Baccardax at martin.baccardax@barrons.com