US Service Sector Cools in March as Prices Surge

Prices paid by businesses for inputs climb to near 3-1/2-year high amid Iran conflict

Apr. 7, 2026 at 12:00am

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A minimalist abstract illustration using bold geometric shapes and primary colors to represent the concept of rising inflation and economic uncertainty, without any text or literal depictions.As the U.S. services sector cools and prices surge, the economic fallout from the conflict with Iran looms large.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 conflict 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 has boosted global oil prices by more than 50% and pushed the national average retail gasoline price above $4 per gallon.

Why it matters

The surge in prices paid by businesses is an early indicator that the conflict with Iran is starting to feed through to broader inflation, which could impact consumer spending and the Federal Reserve's monetary policy decisions. The services sector is a critical driver of the U.S. economy, so slower growth in this area could signal broader economic headwinds.

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, indicating slower deliveries, which manufacturers of food, beverages and tobacco products cited as '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 trade group that conducts a monthly survey of the services sector, which accounts for more than two-thirds of U.S. economic activity.

Donald Trump

The former U.S. president who imposed broad tariffs, which have since been struck down by the U.S. Supreme Court, but then responded by imposing a global tariff for up to 150 days.

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What’s next

The March Consumer Price Index report, scheduled for release on Friday, will provide a clearer picture of the broader inflationary pressures facing the U.S. economy due to the conflict with Iran.

The takeaway

The slowdown in the services sector and the surge in prices paid by businesses are early signs that the prolonged conflict with Iran is starting to take a toll on the U.S. economy, raising concerns about the potential for higher inflation and the Federal Reserve's policy response.