America’s Services Sector Kept Growing In June. But AI Data Centers Are Creating New Supply Shortages.

The U.S. services sector continued to expand in June as businesses reported steady customer demand and easing inflation pressures, while ongoing investment in artificial intelligence infrastructure created fresh supply chain bottlenecks for key materials and components.

The latest business surveys showed the nation’s largest economic sector remained in growth territory during June, although the two closely watched measures offered different views on hiring. One survey showed employment rebounding after several months of contraction, while another reported staffing levels continued to decline even as new business strengthened.

The Institute for Supply Management’s (ISM) Services Purchasing Managers Index slipped to 54 in June from 54.5 in May, remaining well above the 50 mark that signals expansion. At the same time, S&P Global’s Services PMI Business Activity Index rose to 51.2 from 50.7, reflecting modest but continued growth in business activity, Axios reported.

The ISM survey found business activity and new orders cooled from May’s pace but continued to point to healthy demand. Its employment index climbed to 51.2 from 47.9, returning to expansion for the first time since February and recording its biggest monthly gain since 2024, Bloomberg reported.

S&P Global’s survey presented a different picture for the labor market. While new orders recorded their strongest increase since February, employment continued to decline, suggesting companies remained cautious about adding workers despite stronger customer demand, the Axios report said.

Inflation pressures eased during the month. ISM’s prices paid index dropped to 67.7 from 71.3 in May, marking its lowest level in four months. The decline followed lower oil and gasoline prices after the recent conflict between Israel and Iran eased through an interim ceasefire.

Reuters reported that businesses also saw demand normalize after a temporary surge in May, when companies accelerated orders during the Middle East conflict. ISM’s new orders index declined to 55.1 from 57.3 but remained comfortably in expansion territory, while order backlogs increased.

The AI infrastructure buildout continued to create challenges for suppliers despite broader improvements in pricing.

ISM said every commodity reported to be in short supply during June was tied to data center construction. Steve Miller, chair of the ISM Services Business Survey Committee, said memory components have shifted from becoming more expensive to becoming difficult to obtain, increasing the risk that businesses may struggle to secure needed supplies.

Survey respondents also pointed to longer lead times for specialized equipment. One utility company said suppliers were limiting price quotations to as little as 24 hours because of volatile pricing, material shortages and extended delivery times. Another respondent reported that demand for data center equipment continued to outpace available supply.

Supplier delays remained elevated during June. Reuters reported that ISM’s supplier deliveries index eased to 54.4 from 55.2, indicating vendors were still taking longer to deliver materials. While slower deliveries often accompany stronger economic activity, the report noted that current delays largely reflected supply chain constraints rather than unusually strong demand.

Businesses continued to face elevated costs even as inflation moderated. Chris Williamson, chief business economist at S&P Global Market Intelligence, said customer resistance to higher prices remained widespread, particularly among consumer-facing businesses, the Axios report said. He added that businesses expected lower prices to support sales activity.

The June surveys followed last week’s U.S. employment report, which showed payroll growth slowed after stronger gains during the previous three months. Bloomberg reported that easing energy costs, combined with resilient consumer demand, gave businesses greater room to expand payrolls during June despite a broader slowdown in hiring across the economy.

The services sector accounts for more than two-thirds of U.S. economic activity, making it a closely watched measure of economic conditions. June’s surveys showed businesses continued to report steady demand while managing lower energy costs, lingering inflation in some categories and supply shortages linked to expanding AI infrastructure.