New orders for services rose to their highest level in more than three years in March, the Institute for Supply Management reported Monday, as strong demand across the economy proved resilient to the spike in energy prices driven by the U.S.-Israel military campaign against Iran.
The ISM index for the services sector registered 54 percent, down from 56.1 percent in February but still comfortably in expansion territory for the 21st consecutive month. The slight pullback in the headline number masked what was arguably the most important signal in the report: the barometer of new order surged to its highest reading since February 2023.
The strength in new orders was reinforced by the gauge of backlogged orders, which remained in expansion territory for the second straight month, the first back-to-back expansion in backlogs since May 2024.
Thirteen of 16 services industries reported growth in March, led by wholesale trade, management of companies, and finance and insurance. The three industries reporting contraction were retail trade, which may have been affected by winter storms and rising gasoline prices; agriculture, forestry, and fishing, which is heavily weather-dependent; and public administration, which reflects government staffing decisions rather than private-sector economic conditions.
Prices Rise on Oil and Commodities
The measure of prices paid for services jumped to its highest level since October 2022, as the Iran conflict pushed oil prices higher and disrupted shipping through the Strait of Hormuz. Companies across multiple industries reported rising gas and diesel costs.
But the price increases were not limited to energy. Lumber, copper, aluminum, and steel were also cited by respondents, with the utilities industry pointing to “strong infrastructure demand” as a driver of higher commodity costs — a sign that at least some of the price pressures reflect robust economic activity rather than purely supply-side disruption.
“Continued volatility in copper, aluminum and steel markets — driven by supply chain constraints and strong infrastructure demand — has increased costs and lead times for electric utility projects,” one utilities executive told ISM.
The index that tracks the pace of deliveries from supplies rose its highest reading since October 2024, indicating slower delivery times due to Middle East shipping disruptions and lingering effects of winter weather.
Employment Index Drops Sharply
The gauge of payrolls fell to its lowest reading since December 2023. ISM chair Steve Miller called the decline “a surprise” given the broader strength in the report.
The employment reading contrasts with last week’s Bureau of Labor Statistics jobs report, which showed the economy adding 178,000 payrolls in March, above forecasters’ expectations.
Several respondents said they were building inventories to buffer against potential supply chain disruptions from the conflict, with the ISM index for inventories holding in expansion territory.
Iran Conflict Dominates Respondent Comments
Miller noted that the Iran conflict had overtaken tariffs as the primary concern among survey respondents. “Although tariff impacts were still noted by panelists, Iran-related impacts dominated the comments in March,” he said.
The technology sector stood out for its strength, with one respondent reporting that “demand for AI computer infrastructure remains incredibly resilient” and that customers had opened their 2026 capital budgets, “leading to a strong refresh in new order intake.”
Both exports and imports remained in expansion territory for the second consecutive month — the first time both indexes have expanded in back-to-back months since September and October 2024.
Read the full article here