U.S. Services Sector Growth Slows Amid Iran Conflict and Rising Prices

Event summary

  • The ISM Services PMI® registered 54% in March 2026, down 2.1 percentage points from February, marking the 21st consecutive month of expansion.
  • The Employment Index contracted for the first time in four months, dropping 6.6 percentage points to 45.2%.
  • The Prices Index surged 7.7 percentage points to 70.7%, its highest level since October 2022, driven by higher oil and fuel costs.
  • Thirteen industries reported growth in March, with Retail Trade, Agriculture, Forestry, Fishing & Hunting, and Public Administration contracting.
  • Supplier Deliveries Index indicated slower performance for the 16th consecutive month, reflecting shipping issues and flight disruptions due to the Middle East conflict.

The big picture

The U.S. services sector continues to expand but at a slower pace, with the March 2026 ISM Services PMI® reflecting the impact of geopolitical tensions and rising prices. The contraction in the Employment Index is a notable outlier amid otherwise strong business activity and new orders. The data suggests that while the overall economy remains robust, external shocks like the Iran conflict and supply chain disruptions are creating volatility in key indicators.

What we're watching

Geopolitical Risks
How the Iran conflict and potential closure of the Strait of Hormuz will continue to impact supply chains and commodity prices.
Inflation Pressures
Whether the surge in the Prices Index will sustain or moderate in the coming months as oil and fuel costs fluctuate.
Employment Trends
The pace at which the Employment Index will recover from its contraction, given the broader economic expansion signals.

Related topics

Construction