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Report On Business® Roundup: March Services PMI®

April 03, 2025
By Dan Zeiger

In the January/February issue of Inside Supply Management®, Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, said the sector is on a growth trajectory — as long as there isn’t a shock to the system.

“If there’s a negative shift, there isn’t a lot of cushion,” he said in the magazine’s annual economic outlook feature. “A downturn in consumer spending, a bombshell around tariffs or immigration, or interest rate reductions not translating to lower borrowing costs could turn the numbers the wrong way.”

That sentiment is looking more profound in the wake of “Liberation Day,” the Trump administrations announcement of a 10-percent baseline tariff on all countries and broad reciprocal duties. It was the last straw for financial markets that have navigated a flood of tariffs — some off as quickly as they were on — from President Donald Trump since he returned to office in January.

The Services ISM® Report On Business® was unveiled on Thursday, with the PMI® in March a lower-than-expected 50.8 percent, with troubling dips in employment and exports. But determining the impact on investors was like trying to find the ripple of a stone’s throw during a typhoon, as a markets rout commenced from their opening bells, thanks to the tariffs fallout.

Though the Services PMI® data was compiled before Wednesday’s tariffs announcement, “I think we can safely say that there is a significant impact on the demand related to some of the recent administrative actions,” Miller told a conference call of reporters. “I wish I had a crystal ball (on the future impact), but there’s so many different scenarios and sources of supply in play.”

He continued, “Construction and utilities were already seeing cost impacts on raw materials and equipment, and agriculture has expressed negative impacts.” The fallout is not only from tariffs, but also immigration policy and funding and staffing cuts at federal agencies.

But first, the good news: The Business Activity Index increased in March, with a reading of 55.9 percent that indicates robust growth. “That was the bright spot of the report, and commentary suggested it wasn’t related to getting ahead of tariffs,” Miller said. “That shows good strength.”

How long that holds up is to be determined, given decreases in other indexes that were especially disappointing, considering the February data showed the services sector’s resiliency: For a third straight month, all four subindexes that factor into the PMI® were in expansion, including the highest Employment Index reading since December 2021.

But in March, the Employment Index tumbled 7.7 percentage points to 46.2 percent, the lowest reading since December 2023 (43.7 percent). Among companies surveyed, 13.5 percent reported increasing staff, down from 19.3 percent the previous month, while 19.2 percent reduced their head counts, an increase from 15 percent in February.

Amid uncertainty, Miller said, companies seek to limit costs, and labor is one of their most controllable expenses. “That’s an easy lever to pull when you are not sure about the inflationary impact on the cost of goods,” he said. “That companies were reforecasting their hiring or putting it under more review and not backfilling positions was evident in panelists’ comments.”

Such hesitancy could extend to other investments: “We are still holding back some money for emergency use in case the new administration targets grant usage and puts a hold on current spending,” wrote a Services Business Survey panelist in Transportation & Warehousing.

The New Orders Index barely stayed in expansion at 50.4 percent and was not helped by the New Export Orders Index falling 6.3 percentage points to 45.8 percent. Given recent friction between the U.S. and its North American trading partners, it was considered a minor miracle that manufacturing exports contracted only mildly in March.

While 78 percent of services companies indicated that they do not perform or measure exports, those that do were not as fortunate as their manufacturing counterparts. Industries that reported the largest decreases in exports were Real Estate, Rental & Leasing, Management of Companies & Support Services, and Construction.

In other subindex news:

  • The Prices Index was above 60 percent for a fourth straight month, and the reading of 60.9 percent was down 1.7 percentage points compared to February; the index will be hard-pressed to remain at its current level amid a trade war.
  • The Imports Index (52.6 percent) moved into expansion territory, thanks in part to the tariff threats; a panelist wrote, “Ordering extra of some commodities in anticipation of price increases.”
  • The Backlog of Orders Index returned to contraction at 47.4 percent — a somewhat discouraging sign for demand, though many services companies (including 41 percent of those surveyed in March) do not measure order backlogs.

The Report On Business® roundup:

Bloomberg: U.S. Services Index Falters as Employment Shrinks Most Since 2023. “A sustained trend of weaker employment readings may raise concerns of a broader slowdown in a labor market that has been the economy’s bedrock. … The decline in bookings may reflect the growing uncertainty many firms are experiencing as the Trump administration pushes forward with tariffs. Businesses are also awaiting lawmakers’ tax legislation expected later this year.”

CNBC: ISM Non-Manufacturing PMI 50.8 vs. 52.9 Estimated. “Boy, there are some weak numbers here, gang,” analyst Rick Santelli said. “These are ISM for the month of March. … On the services index, 50.8 percent is about two points less than what we were expecting (and) the weakest level since June of last year. (The Prices Index) is the good news: It went down to 60.9 percent, the lowest since November. This is one where coming down is a good thing.”

MarketWatch: U.S. Economy Slowed in March and Prices Rose Even Before ‘Liberation Day’ Tariffs, ISM Finds. “The service side of the economy generates most U.S. growth and is less affected by tariffs, but costs are bound to rise as businesses try to find new sources of supply. It’s too early to tell just how much a trade war might hurt the economy … but a recession can’t be ruled out, some say.”

Reuters: U.S. Service Sector Growth Nearly Brakes in March. “The PMI® added to downbeat surveys of consumers and businesses as well as so-called hard data like consumer spending and inflation, that have raised concerns of stagflation. The odds of a recession over the next 12 months have also risen. President Donald Trump’s barrage of tariffs since returning to the White House in January have sapped business and consumer sentiment, casting a pall over the once-resilient economy.”

In case you missed Tuesday’s Report On Business® Roundup on the release of the March Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Monday. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Nonthanat Puengtrakun)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.