US Stock Market | Rising Costs, Slower Growth: Services data signals sticky inflation risk

Growth in the U.S. services sector moderated in March while input costs surged sharply, highlighting mounting inflationary pressures tied to the ongoing Middle East conflict, according to data cited by Reuters.

The Institute for Supply Management’s (ISM) non-manufacturing purchasing managers’ index slipped to 54.0 in March from 56.1 in February. Although the reading remained above the 50 mark, which signals expansion, it fell short of economists’ expectations of 54.9, indicating a slower pace of growth in a sector that drives more than two-thirds of the U.S. economy.

At the same time, Reuters noted a sharp escalation in price pressures. The survey’s measure of prices paid by businesses jumped by 7.7 points to 70.7, the biggest increase in more than 13 years, reflecting rising fuel costs and supply disruptions.


The prolonged conflict involving Iran has pushed global oil prices up by over 50%, with U.S. gasoline prices climbing above $4 per gallon for the first time in nearly four years. These cost pressures are beginning to filter through supply chains, raising concerns about persistently high inflation.

Despite the slowdown, activity remained broad-based. Reuters reported that 13 service industries, including wholesale trade, transportation, construction, and utilities, continued to expand. However, retail trade, agriculture, and public administration recorded a contraction.

Businesses highlighted growing uncertainty stemming from geopolitical tensions and trade disruptions. Reuters cited concerns around shipping risks in the Strait of Hormuz and higher logistics costs, along with lingering uncertainty over U.S. tariff policies.

Demand, however, showed resilience. The survey’s measure of new orders rose to a two-year high of 60.6, indicating continued underlying strength in services activity, even as export orders slowed and backlogs moderated.

Employment trends were mixed. The ISM employment index fell to its lowest level since December 2023, suggesting weakness in hiring within the services sector. This contrasted with official labour data showing a rebound in overall job growth in March.

Supply chain challenges also persisted, with Reuters noting slower supplier deliveries and reports of delays due to backlogs and transportation constraints, including truck shortages.

The data reinforces expectations that the Federal Reserve is likely to remain cautious on interest rates. Policymakers may keep rates unchanged for an extended period as they balance slowing growth with sticky inflation.

Impact on U.S. Stocks

Financial markets showed a relatively muted but positive reaction to the data. US stocks ended higher as investors focused on continued economic expansion and strong order growth despite rising costs.

The combination of steady demand and expectations that the Federal Reserve will avoid immediate rate hikes supported equity sentiment. However, Reuters indicated that persistent inflation pressures and geopolitical risks could limit further upside in the near term, as higher input costs may squeeze corporate margins.

Meanwhile, the U.S. dollar remained broadly stable and Treasury yields were little changed, reflecting a wait-and-watch approach among investors as they assess the evolving inflation outlook and geopolitical developments.