U.S. Service Sector Maintains Expansion in March but Growth Slows, Inflationary Pressures Significantly Increase

Zhitong Finance APP learned that the U.S. services sector continued to expand in March, but the pace of growth slowed. At the same time, inflationary pressures rose noticeably, while employment performance unexpectedly weakened. This reflects signs of divergence in the economy’s structure amid geopolitical conflicts and rising costs.

According to the latest data released by the Institute for Supply Management (ISM), the March services PMI was 54%, down 2.1 percentage points from February’s 56.1%. However, it has remained in the expansion range for the 21st consecutive month and is also above the 12-month average level (52.3%), indicating that the overall services sector still shows resilience.

Looking at the sub-indicators, the business activity index fell to 53.9%, the lowest level since September 2025, suggesting that growth momentum has weakened. However, the new orders index rose to 60.6%, a new high since February 2023, indicating that demand remains strong and providing support for the economy going forward.

Of particular note is that the employment indicator showed a clear deterioration. In March, the employment index fell to 45.2%, dropping sharply by 6.6 percentage points from the prior value. It marked the first time in four months that it entered the contraction range, and it also reached the lowest level since the end of 2023, becoming the main “unexpected” in this report.

Meanwhile, price pressures heated up significantly. The price index rose to 70.7%, up 7.7 percentage points from the previous month, reaching the highest level since October 2022. It has also been in an upward range for 106 consecutive months. The report noted that rising oil prices and fuel costs are among the main factors driving the increase in prices.

In terms of supply chains, the supplier deliveries index rose to 56.2%, remaining in the expansion range for the 16th consecutive month, meaning that delivery speed slowed. ISM stated that this is related to transportation disruptions in the Middle East and weather factors, further aggravating operational pressure on businesses.

As for inventories, companies are increasing stockpiling in response to potential supply shocks. The inventories index was 54.8%, expanding for the second consecutive month. Some companies have clearly stated that they are stockpiling oil-related products to hedge against supply risks if the Iran conflict escalates or if the Strait of Hormuz is disrupted.

Industry distribution shows that in March, 13 services industries achieved growth, including wholesale trade, finance and insurance, accommodation and food services, transportation and warehousing, and information services. Retail, agriculture, and public administration, however, saw contraction.

Business feedback generally points to uncertainty brought by the Middle East conflict. Some companies said that transportation disruptions, rising oil prices, and potential supply-chain risks are driving up costs and affecting international business, while also prompting companies to adjust their procurement and inventory strategies.