US Service Sector Growth Slows in March as Inflation Pressures Surge to Multi Year High

06 April 2026

The U.S. services sector showed signs of cooling in March, even as inflation pressures intensified sharply, highlighting a growing imbalance in the economy. Data from the Institute for Supply Management revealed that the non manufacturing purchasing managers index fell to 54.0 from 56.1 in February, indicating continued expansion but at a slower pace than expected.

Despite the slowdown in growth, the most striking development came from the surge in input costs faced by businesses across the sector. The prices paid index jumped to 70.7, marking the fastest increase in more than 13 years and reaching its highest level since late 2022, signaling a sharp rise in inflationary pressures.

A key driver behind these rising costs has been the ongoing conflict involving Iran, which has pushed global oil prices significantly higher and disrupted supply chains. Energy prices have risen more than 50 percent in recent weeks, leading to increased transportation and logistics costs that are now being passed through the services sector.

The report also highlighted weakness in employment within the services sector, with the jobs index falling into contraction territory and reaching its lowest level since late 2023. This decline contrasts with stronger official labor market data, suggesting a disconnect between business sentiment surveys and broader employment trends.

At the same time, demand indicators showed mixed signals, with new orders rising to a two year high, indicating that underlying demand for services remains relatively strong. However, export orders slowed and backlog growth moderated, pointing to potential softening in future activity as global uncertainties weigh on business confidence.

Supply chain disruptions have also played a role in the evolving economic picture, with slower supplier deliveries reflecting bottlenecks in the movement of goods and services. These delays, combined with rising costs, are adding pressure on businesses and contributing to the broader inflation environment.

The combination of slowing growth and rising prices has complicated the outlook for monetary policy, as persistent inflation reduces the likelihood of near term interest rate cuts. The Federal Reserve is expected to maintain its current rate range, as policymakers weigh the risks of inflation against the potential for slowing economic momentum.

Overall, the March data underscores the challenges facing the U.S. economy as it navigates a period of geopolitical tension and economic adjustment. While the services sector remains in expansion, the surge in costs and emerging signs of weakness suggest that the path ahead may involve slower growth alongside continued inflationary pressure.