April 6, 2026

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of service sector firms.  The business activity index for the service sector fell 6.0 points in March to 53.9 after rising 2.5 points in February and 2.2 points in January.  We tend to focus on the business activity component as a measure of “production” because it seems to track better with the pace of economic activity.  Trump’s imposition of tariffs, federal government layoffs, and deportation of immigrants made people in the service sector nervous throughout 2025.  However, in recent months this index moved upwards, but it fell sharply in March as the war in Iran took its toll.

The composite index declined 2.1 points in March to 54.0 after having risen 2.3 points in February and having been unchanged in January. Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management’s  Business Survey Committee said, ““March’s Services PMI^® features the third month in a row with an increase in the 12-month PMI^® average, up 0.6 percentage point from 51.7 percent in December 2025 to 52.3 percent. However, six of the 10 subindexes decreased month-over-month. The Prices Index increased, as expected, amid higher oil and fuel costs, and the Supplier Deliveries Index indicated slower performance compared to February, also unsurprisingly with shipping issues and flight disruptions due to the Middle East conflict and winter weather. Continuing strength in business activity, new orders and backlog of orders are positive economic signals, so the Employment Index dropping to its lowest level since December 2023 (43.5 percent) was a surprise.

He added that, “There are other signs of economic strength. Exports and imports activity have expanded for two months in a row for the first time since September and October 2024. 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. 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. Such construction products as lumber, copper and steel were noted as up in price. Although tariff impacts were still noted by panelists, Iran-related impacts dominated the comments in March.”

At its current level the ISM group says that is consistent with 1.9% growth in GDP.

Comments from respondents include:

• “Tariff rollbacks are resulting in favorable price adjustments, but the news of new implementation is driving continued uncertainty. 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.” [Accommodation & Food Services]
• “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.” [Construction]
• “We are still in cost cutting and operational streamlining mode as technology continues to advance. We have seen more concessions regarding passing through tariff surcharges. We continue to closely monitor the political situation in the Middle East and how ramifications could impact our supply chain and overall costs.” [Finance & Insurance]
• “As we close out the first quarter, demand for AI computer infrastructure remains incredibly resilient. Customers have opened their 2026 capital budgets, leading to a strong refresh in new order intake. Operationally, our focus has shifted toward efficiency and margin protection.” [Information]
• “Political uncertainty with Iran conflict has resulted in less international business. Domestic business remains consistent with January and February levels.” [Mining]
• “We’re seeing some expansion across the services economy with stronger business activity and new orders. Clients remain active on regulatory, tax planning, and risk management initiatives, though persistent pricing pressures and evolving economic conditions continue to shape project prioritization and budgeting.” [Professional, Scientific & Technical Services]
• “The war in Iran has added an additional layer of uncertainty on top of an already shaky macroeconomic climate. A spike in inflation due to higher oil prices will reduce purchasing power, affecting every industry.” [Real Estate, Rental & Leasing]
• “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.” [Transportation & Warehousing]
• “Continued volatility in copper, aluminum and steel markets — driven by supply chain constraints and strong infrastructure demand — has increased costs and lead times for electric utility projects. These conditions are influencing purchasing strategies and capital planning across the industry.” [Utilities]
• “The U.S.-Israel military operations against Iran have created significant uncertainty for our Omani frankincense imports. Threats to close the Strait of Hormuz and rising war-risk surcharges are pressuring regional logistics costs, even for air freight. Combined with the Supreme Court’s emergency tariffs ruling — which replaced our 10-percent tariff with a 15-percent Section 122 tariff — landed costs have increased materially. We are monitoring regional stability closely and maintaining communication with Omani suppliers.” [Wholesale Trade]

The non-manufacturing orders component rose 2.0 points in March to 60.6 after having jumped 5.5 points in February. The index has expanded in 37 of the last 39 months. Comments from respondents include: “We are growing due to continued demand for digital transformation, increased reliance on cloud-based solutions, and the need for secure, scalable software platforms” and “Our submission rate is declining in part due to a softening of the commercial property industry.”

The ISM non-manufacturing index for employment fell 6.6 points in March to 45.2 after having risen 1.5 points in February.  Five industries reported an increase in employment in March. Comments from respondents include: “Lower employment in the U.S., higher in India and other low-cost geographies; H-1B visa salaries have increased as well” and “Staffing levels remain adequate; however, attendance declined by approximately 5 percent compared to the previous month.”

The suppler deliveries component rose 2.3 points in March to 56.2 after having fallen 0.3 point in February  This component is reversed in the sense that a reading above 50 percent indicates slower deliveries to service sector firms which is typically indicative of a strengthening economy.    A reading below 50 percent indicates faster deliveries. Thus, firms reported slower delivery times in March for the 16th month in a row. Comments from respondents include: “Back orders from suppliers and manufacturers are creating delays” and “A shortage of trucks is slowing down deliveries.”  The closure of the Strait of Hormuz is creating shipping delays for a wide variety of goods.

Finally, the price component jumped 7.7 points in March to 70.7 after having declined 3.3 points in February.  The March reading is the 106th consecutive month of rising prices.   The 7.7 point jump is its biggest one-month increase in more than 13 years.  Seventeen of 18 service sector industries reported an increase in prices paid during the month.  Price pressures are continuing to climb in the service sector in part because of tariffs but, in March, the gain was largely related to oil prices.

The manufacturing sector of the economy contracted in almost every month since mid-2022 but it has rebounded in recent months .  Look for 2.0% GDP growth in the first quarter of 2026 and 2.5% growth for the year as a whole.

.Stephen Slifer

NumberNomics

Charleston, SC