WASHINGTON – The nation’s services industry saw reduced growth during March as companies dealt with sharply rising costs for materials and supplies, reaching levels not seen in three and a half years, according to new economic data released Monday.
The Institute for Supply Management reported its nonmanufacturing index fell to 54.0 in March, down from February’s reading of 56.1. Market analysts had predicted a smaller decline to 54.9. Any measurement above 50 signals expansion in the services industry, which represents over two-thirds of America’s total economic output.
The ongoing U.S.-Israel military engagement with Iran, now entering its second month, has driven global petroleum costs upward by more than 50 percent. Nationwide gasoline prices at the pump have climbed past $4 per gallon, marking the first time in over three years that threshold has been crossed. Economic forecasters anticipate the war’s inflationary impact will become evident in this Friday’s March Consumer Price Index data.
February’s producer price increases already reflected expectations of the Middle Eastern conflict’s escalation.
The ISM survey showed business input costs jumped dramatically to 70.7, representing the steepest level since October 2022, compared to February’s 63.0 reading.
This pricing indicator had stayed high previously, with companies attributing increased expenses to President Donald Trump’s comprehensive tariff policies, which the U.S. Supreme Court later overturned. Trump’s response included implementing worldwide tariffs lasting up to 150 days.
Supply chain delivery times lengthened, with the supplier deliveries metric rising to 56.2 from February’s 53.9. Readings exceeding 50 percent indicate delayed shipments. Manufacturing facilities reported similar delays, particularly food, beverage and tobacco producers who cited “container delays.”
Anticipated inflation consequences from the conflict have significantly reduced expectations for interest rate reductions this year. The Federal Reserve maintained its primary overnight rate between 3.50% and 3.75% during last month’s meeting.
New business orders climbed to a two-year peak of 60.6, up from February’s 58.6. However, international order growth declined substantially and backlog increases moderated.
Employment within the services sector declined, with job-related measurements falling to their lowest point since December 2023. This contradicts March’s strong employment rebound, which included 143,000 additional private service jobs. The ISM employment indicator has historically been an unreliable predictor of the Labor Department’s private services employment figures.
