Services Sector Orders Reach Three-Year High
New orders for services in March hit their highest point in over three years, according to a report from the Institute for Supply Management. This surge reflects strong demand across the economy, demonstrating resilience even amid rising energy prices linked to the U.S.-Israel military campaign against Iran.
The ISM index for the services sector registered at 54%, a drop from 56.1% in February. However, it remains in expansion territory for the 21st consecutive month. Interestingly, the slight decrease in the overall numbers masks a significant insight: the barometer for new orders reached its highest level since February 2023.
In addition, the strength of new orders was supported by backlog figures, which have stayed in expansion territory for a second consecutive month, marking the first continuity in backlog growth since May 2024.
Out of 16 service industry sectors, 13 reported growth in March, with wholesale trade, business management, and finance/insurance leading the way. Nonetheless, retail saw contraction, possibly influenced by winter weather and climbing gas prices. Additionally, sectors like agriculture, forestry, and fishing are heavily impacted by changing weather patterns.
Rising oil and commodity prices have also played a crucial role. A measure of prices paid for services surged to its highest mark since October 2022, driven by the Iran conflict, which has led to higher oil prices and shipping disruptions in the Strait of Hormuz. Companies in varied sectors reported an uptick in costs, particularly for gasoline and diesel.
Price increases aren’t confined to energy, though. Feedback from respondents pointed to rising costs for materials like wood, copper, aluminum, and steel. The utilities sector mentioned “strong infrastructure demand” as a factor behind rising commodity prices, suggesting that some price pressures may stem from robust economic activity rather than solely supply disruptions.
As one executive from the utilities sector noted, “Supply chain constraints and strong infrastructure demand continue to create volatility in the copper, aluminum, and steel markets, which is increasing costs and lead times for power projects.”
Additionally, the index tracking the pace of deliveries from suppliers reached its highest level since October 2024, indicating that shipping disruptions in the Middle East and prolonged winter weather are impeding delivery timelines.
On a concerning note, employment data fell to its lowest level since December 2023. ISM chair Steve Miller remarked that this drop was “surprising,” especially given the comprehensive nature of the report.
This jobs data contrasts with last week’s Bureau of Labor Statistics report, which indicated that the economy added 178,000 jobs in March, surpassing expectations.
Several survey participants mentioned that the ISM index, which gauges inventories, remains in expansion territory as they increase their stockpiles to prepare for potential supply chain issues triggered by ongoing conflicts.
Miller highlighted that concerns about the Iran conflict overshadowed tariffs as the primary worry among those surveyed. “While panelists did note the impact of tariffs, comments in March were largely dominated by issues related to Iran,” he stated.
The technology sector also showed impressive resilience, with one respondent sharing that “demand for AI computer infrastructure continues to be incredibly strong,” adding that customers are expanding their 2026 capital budgets, leading to a notable rebound in new orders.
Finally, both imports and exports have remained in expansion territory for two consecutive months, a first since September and October 2024, showcasing a bit of consistency in these metrics.
