U.S. ISM Services Index (March 2025)

ISM services index tumbles in March as new orders and employment slump.

• The ISM Services index fell 2.7 points to 50.8 in March, short of the 52.9 consensus was expecting. Ten of eighteen industries reported growth in March, down from fourteen in February.
• Business activity advanced, rising 1.5 points to 55.9. New orders fell to 50.4, extending its downward trajectory, and just above the 50 cut-off for growth. Notably, apart from the one-off contractions in June 2024, December 2022, and the shutdown months of April and May 2020, today's print is the softest new orders reading since July 2009.
• The employment index sank sharply (46.2 vs. 53.9 in February), suggesting services payrolls turned lower in March. However, the employment index has signaled contraction several times in early 2024, while the labor market continued to expand.
• The prices paid sub-component took a step back to 60.9 from 62.9 in February. The trend in the index suggests services prices pressures are likely to persist over the near-term. The three-month moving average of the index is at 61.3, just below its April 2023 level of 61.4.

Key Implications

• The services sector cooled a bit in March. Business activity ticked up showing firms continue to expand operations, but the details of the report left quite a bit to be desired. The downward trend in new orders growth is notable, while the employment subindex fell into contraction territory again. Moreover, several respondents cited tariffs in their comments as impacting current business conditions. 
• How economic uncertainty filters through to the services sector is now all-important. Yesterday's announcement on tariffs is likely to kick-start global negotiations, but in the meantime businesses and households are going to be in wait-and-see mode for where things eventually settle. The focus now shifts to tomorrow's payrolls report for, hopefully, some clarity on how market conditions could be impacting the labor market. 

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