ISM Services Employment Contracts, Prices Paid Rise the Most in 13 Years

ISM Services weakens but still growing. Prices paid jumped the most in 13 years.

ISM Services chart and details by permission of the Institute for Supply Management^® 

Please consider the March 2026 Services ISM^® Report, emphasis mine.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In March, the Services PMI^® registered 54 percent, a decrease of 2.1 percentage points compared to February’s figure of 56.1 percent and its second-highest reading since October 2024 (55.5 percent). The Business Activity Index remained in expansion territory in March but dropped from February’s reading of 59.9 percent to 53.9 percent, its lowest reading since September 2025 (50.2 percent). The New Orders Index registered 60.6 percent, 2 percentage points above February’s figure of 58.6 percent and its highest level since February 2023 (61 percent). The Employment Index contracted for the first time in four months with a reading of 45.2 percent, a 6.6-percentage point decrease from the 51.8 percent recorded in February,” says Miller.

Miller continues, “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.

“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.”

What Respondents Are Saying

• “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]

War in Iran Now the Top Concern

For over a year the top concern was tariffs. Now it’s the war in Iran.

However, one respondent noted “our 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.“

Prices Paid for Inputs

Prices paid by services organizations for materials and services increased in March for the 106th consecutive month. The Prices Index registered 70.7 percent, 7.7 percentage points higher than the 63 percent recorded in February — its largest one-month increase in more than 13 years.

Seventeen industries reported an increase in prices paid during the month of March, in the following order: Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Construction; Information; Public Administration; Management of Companies & Support Services; Wholesale Trade; Professional, Scientific & Technical Services; Finance & Insurance; Accommodation & Food Services; Real Estate, Rental & Leasing; Retail Trade; Educational Services; Utilities; Arts, Entertainment & Recreation; Health Care & Social Assistance; and Other Services. No industry reported a decrease in March.

The war in Iran adds to those price pressures. Gasoline, diesel, fertilizer, aluminum, jet fuel, and other commodities have all risen due to the impasse in the Strat of Hormuz.

Jet Fuel and Trade Data Updates

On April 5, 2026, I commented Jet Fuel Costs Skyrocket, Airlines to Hike Prices, Italy Rations Supply

A reader asked for an update on jet fuel prices.

Today, we see this ISM Services comment: “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.”

Trade Data Discussion

On April 5, 2025, I noted Trade Data Smacks GDPNow First Quarter Forecast Down to 1.1 Percent

I have been calling for this. But the big hit is still ahead.

If I am correct, trade data will be sharply negative for March. But we don’t know what the GDPNow model will now expect.

We won’t find out either. The next full trade data will not be out until after GDP for Q1 is released.

I expected trade data to weaken. Companies held off imports in lieu of the Supreme Court Decision on Tariffs. That decision happened February 20.

Companies will now be rushing to increase imports. Unrelated to tariffs, the war in Iran will do the same thing, assuming supplies are available.

I expect the trade components of the GDP will weaken further although energy exports may increase.

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