Services economy growth continued to grow in March, according to the new edition of the Services ISM Report on Business, which was released today by the Institute for Supply Management (ISM).
The March Services PMI, at 54.0 (a reading above 50 represents expansion and below 50 indicates contraction), fell 2.1%, from February to March, growing, at a faster rate, for the 21st consecutive month, while the overall economy grew, at a slower rate, for the 21st consecutive month.
The March Services PMI reading is 1.7% above the 52.3 12-month average, with February marking the highest reading for that period and May 2025’s 50.2 marking the lowest.
ISM reported that 13 of the services sectors it tracks saw growth in March, including: Wholesale Trade; Management of Companies & Support Services; Finance & Insurance; Accommodation & Food Services; Transportation & Warehousing; Educational Services; Mining; Construction; Utilities; Other Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; and Information. Sectors reporting contraction included: Retail Trade; Agriculture, Forestry, Fishing & Hunting; and Public Administration.
The report’s subindexes that factor into the PMI largely saw gains, including:
- Business Activity/Production, at 53.9, growing, at a slower rate, for the 21st consecutive month, for its lowest reading, going back to September’s 50.2, with 11sectors seeing gains;
- New Orders, at 60.6, rose 2.0%, growing, at a faster rate, for the 10th consecutive month (and expanding in 37 of the last 39, months), with 14 sectors reporting increases in new orders;
- Employment, at 45.2, was down 6.6%, contracting, after three months of growth, with five sectors reporting employment growth; and
- Supplier Deliveries, at 56.2 (a reading above 50 indicates slower deliveries), up 2.3%, slowing, at a faster rate, for the 16th consecutive month, with 11 sectors reporting slower deliveries
Comments from ISM member panelists included in the report highlighted various trends in the services sector, with tariffs, business conditions, and the Iran conflict again each receiving a fair amount of attention.
“Tariff rollbacks are resulting in favorable price adjustments, but the news of new implementation is driving continued uncertainty,” said an Accommodation & Food Services panelist. “Snowstorms last month disrupted demand and supplier operations, mostly around the availability of labor. Forecasted seasonal growth is starting to materialize due to daylight savings time and higher temperatures.”
A Real Estate, Rental & Leasing panelist observed that the Iran conflict has added an additional layer of uncertainty on top of an already shaky macroeconomic climate, adding that a spike in inflation due to higher oil prices will reduce purchasing power, affecting nearly industry. And a Transportation & Warehousing panelist said that recent increases in fuel prices are having a substantial impact on the airline industry, resulting in significantly higher operational costs compared to pricing from the previous month.
In an interview with LM, Steve Miller, Chair of the ISM Services Business Survey Committee, said that the majority of the March report’s subindexes remained in expansion territory.
“Other than the Prices index [up 7.7% to 70.7 and increasing for 106 consecutive months], the services sector is weathering the concerns and initial impacts of the Iran conflict amid a lot of commentary about fuel, energy, and oil prices heading up,” said Miller. “The services sector has a direct relationship to discretionary spending, coupled with not being able to avoid higher fuel costs. And the more that impacts the ability to spend also impacts sectors like retail, construction, and accommodation & food services.”
What’s more, the uncertainty related to the duration of the Iran conflict makes it more difficult to gauge how things will look in the coming months, too.
To that end, Miller noted that, for March New Orders, Real Estate, Rental & Leasing and Wholesale Trade led the pack.
“You can see where Wholesale Trade can have an impact on the war, from a manufacturing standpoint, and you have to move more product to get into production to drive manufacturing,” he said. “Real Estate, Rental & Leasing was unusual to be one of the leaders for New Orders growth.
The report also signaled what Miller called significant forecasting around the risk and potential impact related to oil price increases, which could translate into further increases in prices, at a point when they are very high.
