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Federal Reserve · Geopolitics · Inflation · Services Sector
US services sector growth slowed in March, with the ISM nonmanufacturing PMI slipping to 54.0 from 56.1 in February, while prices paid by businesses for inputs surged 7.7 percentage points to 70.7, the highest in over 13 years, driven by the prolonged Iran war.
The Institute for Supply Management (ISM) survey indicated that the Middle East conflict, now in its second month, significantly boosted inflation pressures, with global oil prices jumping over 50% and national average retail gasoline prices exceeding $4 a gallon. Businesses across various sectors, including construction and wholesale trade, reported increased uncertainty and rising logistics costs due to the war and threats to the Strait of Hormuz.
Services employment dropped to its lowest level since December 2023, though this contradicts government data showing a sharp rebound in job growth. Economists, including Priscilla Thiagamoorthy of BMO Capital Markets, expect the Federal Reserve to maintain interest rates unchanged for some time, as the anticipated inflation fallout from the conflict has greatly diminished the odds of an interest rate cut this year.
The ISM's measure of new orders, however, increased to a two-year high of 60.6.
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S&P Global’s purchasing managers index for services providers fell to 49.8 points in March from 51.7 in February as a rise in energy prices brought on by the war in the Middle East eroded confidence.