US Service Sector Cools in March as Prices Soar

Inflation pressures mount as war with Iran drives up costs for businesses

Apr. 6, 2026 at 6:02pm

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A geometric abstract illustration featuring overlapping triangles and circles in shades of red, blue, and yellow, conceptually representing the rising costs and economic uncertainty caused by the ongoing conflict.As the U.S. grapples with the economic fallout of the war with Iran, the services sector faces mounting inflationary pressures.Washington Today

The U.S. services sector saw slower growth in March, while prices paid by businesses for inputs climbed to near a 3-1/2-year high, an early sign that the prolonged war with Iran was boosting inflation pressures. The Institute for Supply Management reported that its nonmanufacturing purchasing managers index slipped to 54.0 last month from 56.1 in February, as the U.S.-Israel conflict with Iran drove up global oil prices by more than 50% and pushed the national average retail gasoline price above $4 per gallon.

Why it matters

The inflation fallout from the conflict with Iran has greatly diminished the odds of an interest rate cut this year, as the Federal Reserve aims to rein in rising prices. The services sector, which accounts for more than two-thirds of U.S. economic activity, is a key indicator of the overall health of the economy.

The details

The ISM survey's measure of prices paid by businesses for inputs soared to 70.7, the highest reading since October 2022, from 63.0 in February. This gauge had remained elevated, with businesses blaming rising costs from President Donald Trump's broad tariffs, which have since been struck down by the U.S. Supreme Court. However, Trump responded by imposing a global tariff for up to 150 days. The survey's measure of supplier deliveries also increased, mirroring a lengthening in delivery times at factories, with manufacturers of food, beverages and tobacco products citing 'container delays.'

  • The U.S.-Israel conflict with Iran is now in its second month.
  • The March Consumer Price Index report is scheduled to be released on Friday.

The players

Institute for Supply Management

A nonprofit organization that conducts surveys and publishes indices related to the manufacturing and services sectors of the U.S. economy.

Donald Trump

The former President of the United States who imposed broad tariffs that contributed to rising costs for businesses.

Federal Reserve

The central banking system of the United States that sets monetary policy, including interest rates, to manage inflation and promote economic growth.

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What’s next

The March Consumer Price Index report, scheduled for release on Friday, is expected to show the impact of the war with Iran on inflation.

The takeaway

The slowdown in the services sector, coupled with soaring input prices, suggests that the prolonged conflict with Iran is taking a toll on the broader U.S. economy. This could lead the Federal Reserve to maintain its hawkish stance on monetary policy in an effort to rein in rising inflation.