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Growth Slows at US Service Providers as Price Gauge Surges
Input Prices Including Energy Rose Sharply Due to Iran War
The U.S. service economy expanded in March at a slower pace as employment shrank by the most since 2023 and input prices accelerated sharply.
The Institute for Supply Management’s gauge of prices paid for services and materials jumped to 70.7, the highest since October 2022, according to data released April 6. Readings above 50 indicate expansion.
The 7.7-point increase from a month earlier was the largest in nearly 14 years, comparable to the change seen in the group’s manufacturing survey.
The ISM services index fell 2.1 points to 54, dragged down by weaker employment and less growth in business activity.
Businesses are experiencing a sharp run-up in cost pressures for energy and other inputs due to the Iran war. The conflict has essentially closed the Strait of Hormuz, a key passage for oil and other critical products.
“The predominant commentary this month was about impacts and adjustments due to the conflict with Iran and the expected flow through of higher oil prices at some point,” Steve Miller, chair of the ISM Services Business Survey Committee, said in a statement.
Strong but slower growth: Demand signals were mixed while prices took a big leap and the #Employment Index moved into contraction territory. Those details and more in the @ISM® Services PMI® Report for March; the #ISMPMI was 54%, down 2.1 points. https://t.co/uNK6tFzCUI #economy — Institute for Supply Management (@ism) April 6, 2026
“Companies across many industries reported seeing higher gas and diesel pricing, and inventories of multiple goods increased to withstand supply chain disruptions or short-term oil price impacts,” he said.
The war is also fueling uncertainty about the economic outlook, which may be prompting more caution among companies. The ISM gauge of employment at service providers slumped 6.6 points, one of the biggest monthly declines since the pandemic, to 45.2.
Still, official jobs data from the government showed overall payrolls rose a larger-than-forecast 178,000 in March. The rebound in employment was helped by the return of more than 30,000 health care workers, who had been on strike.
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Business activity, which parallels the group’s factory output index, slid 6 points — the most since mid-2024 — to 53.9.
Thirteen services industries reported overall growth in March, including wholesale trade, management of companies, finance and insurance as well as accommodation and food services. Retail trade was among the three sectors that shrank.
The supplier deliveries gauge climbed to the highest level since October 2024.
In the Transportation & Warehousing sector, ISM noted, "Recent increases in fuel prices are having a substantial impact on the airline industry, resulting in significantly higher operational costs compared to pricing from just one month ago.”
ISM also noted transportation disruptions in the Construction segment: “Transportation disruptions in the Middle East are inhibiting both incoming and outgoing cargoes from the region. While force majeure has been received from several Middle Eastern suppliers, business operations are generally at normal levels and no interruptions, except shipping.”
While the details of the survey were largely disappointing, service providers experienced the strongest growth in new orders in more than three years.
