US Services Sector Set to Cool, But March Data Signals Resilience
Article published on April 3rd, 2025 4:45 AM UK Time
The market is gearing up for the next ISM Services PMI release, with current analyst consensus pointing to a modest pullback in the headline index to 53.0 in March, down from 53.5 in February. While that may signal mild softening in momentum, recent business surveys paint a more nuanced picture of economic resilience—especially within the services sector, which continues to anchor overall growth.
Flash PMI Shows Momentum in Services
The latest S&P Global Flash Services PMI surprised to the upside, climbing to 54.3 in March from 51.0 in February—a three-month high. The data revealed a sharp acceleration in services activity, which offset a renewed contraction in manufacturing. The firm noted that service-driven strength was instrumental in lifting overall business activity in March.
However, sentiment remains fragile:
- Business expectations for the year ahead dropped to the second-lowest since October 2022.
- Firms voiced concerns about weakening customer demand and the uncertain impact of new administration policies.
- Services exports remained a drag, falling for a third consecutive month.
Inflation Pressures Building in the Service Sector
One of the key takeaways from the S&P data was a concerning uptick in service-sector inflation:
- Input costs rose at the fastest rate in nearly two years.
These figures are likely to reignite debate at the Federal Reserve, especially as policymakers try to determine whether inflationary pressures in services are transitory or structural.
Q1 Growth Still Holding – But Risks Mounting
Despite headwinds, the US economy still appears to be growing modestly, with the S&P survey data suggesting:
- 1.9% annualised growth in March
- 1.5% for Q1 overall, marking a slowing from late 2024
💡 Bottom Line: The US services sector remains the key engine of growth, but risks are gathering on the horizon. With export weakness, tariff-driven cost pressures, and a fragile manufacturing backdrop, investors will be closely watching for signs that the March strength in services was more than just a weather-related rebound.
As always, the ISM Services print will be a pivotal release, particularly for those trading rates, FX, and equity indices linked to US macro momentum.