The US ISM Services PMI for March registered 54, indicating expansion for the 21st consecutive month. However, the reading fell short of the market consensus of 54.9 and declined noticeably from the previous figure of 56.1. On the surface, the services sector continues to expand, but structural divergence has intensified, revealing significant cracks in economic momentum.
Sub-indices show a "triple divergence" between growth, inflation, and employment. The report presents a typical mixed structure: New orders showed strength. The New Orders Index climbed to 60.6, its highest level since February 2023, indicating continued resilience in demand. Price pressures intensified significantly. The Prices Paid Index jumped to 70.7, the highest reading since October 2022, and has now remained above 60 for 16 consecutive months, reflecting persistent inflationary stickiness. Employment weakened abruptly. The Employment Index dropped to 45.2, falling into contraction territory for the first time in four months and marking its lowest level since December 2023, representing the most prominent weakness in the current report.
Business activity slowed but has not yet turned contractionary. The Business Activity Index fell sharply from 59.9 to 53.9, reaching its lowest level since September 2025, signaling a clear cooling in the services sector's growth momentum. Concurrently, the Supplier Deliveries Index rose to 56.2, suggesting slower deliveries, which is often associated with rising demand and supply chain pressures. The Inventories Index retreated to 54.8, but businesses continue to actively restock to hedge against potential supply shocks. The Backlog of Orders Index remained in expansionary territory but cooled somewhat, indicating that while demand exists, it is marginally weakening. Overall, the economy is still expanding, but the pace is slowing noticeably.
External shocks are amplifying uncertainty, with oil prices and geopolitics becoming key variables. The report indicates that businesses widely cited pressures from rising energy costs. Prices for gasoline and diesel increased, alongside rising prices for commodities like lumber, copper, and steel. Firms are also proactively building inventories to prepare for potential supply chain disruptions. Primary reasons cited include: heightened tensions in the Middle East (particularly involving Iran); disruptions to shipping and air freight; and logistical impacts from winter weather. In contrast, tariff factors are still mentioned but are no longer the primary concern, as geopolitical shocks are emerging as the new dominant variable.
Convergence with S&P Global PMI suggests the true state of the services sector is emerging. Over the past six months, the S&P Global and ISM Services PMIs showed a significant divergence: the former trended weaker, while the latter remained elevated. However, this gap began to narrow in March: the S&P Global Services PMI fell into contraction territory, while the ISM Services PMI concurrently declined to 54. Analysis suggests that this "realignment" of the two major indicators implies that the resilience previously shown by the ISM might have been overestimated, and the true condition of the services sector is gradually becoming apparent. S&P Global Chief Economist Chris Williamson noted that the US economy is facing dual pressures from rising prices and increased uncertainty. PMI survey data indicates the US economy is grappling with mounting price pressures and heightened uncertainty. Conflicts in the Middle East are amplifying concerns about recent other policy decisions, particularly those related to tariffs.