U.S. Services Sector Expansion Continues Amid Slowing Momentum and Rising Cost Pressure

Source: Dukascopy Bank SA
March 2026 ISM Services PMI report shows that the U.S. services sector continues to expand, marking its 21st consecutive month of growth with a reading of 54%, although momentum has slowed compared to February. Overall economic expansion has now reached 70 straight months, but the decline in the headline index reflects mixed conditions across the sector.

Demand remains strong, as evidenced by a rise in the New Orders Index to its highest level since early 2023. However, business activity has moderated, indicating that companies are not increasing output at the same pace as incoming demand. At the same time, global trade activity continues to expand modestly.



A key concern in March was a sharp surge in costs, with the Prices Index posting its largest monthly increase in over a decade. This rise has been driven largely by geopolitical tensions involving Iran, which have disrupted shipping routes, increased fuel prices, and added supply chain friction. Businesses are also facing higher input costs for raw materials and ongoing shortages of components and skilled labor, alongside slower supplier deliveries.

Despite strong demand, employment declined unexpectedly, suggesting that companies are becoming more cautious. Firms appear to be focusing on cost control and operational efficiency, while also dealing with labor availability challenges.

Overall, most industries continued to grow, led by wholesale trade, corporate services, and finance, though a few sectors including retail and agriculture experienced contraction. The report highlights a resilient but increasingly pressured services economy, where strong demand is being offset by rising costs, supply constraints, and cautious hiring.
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