US Service Sector Growth Cools in March as Employment Drops and Input Prices Spike
The US service economy expanded in March at a slower pace as employment shrank by the most since 2023 and input prices accelerated sharply.
The United States service sector expanded at a slower pace in March, according to the latest industry data, as rising input costs and a sharp decline in employment weighed on activity across the broader economy.
The Institute for Supply Management's services index indicated continued growth but fell short of expectations, signaling that momentum in the dominant sector of the US economy may be losing steam heading into the second quarter.
Employment in the services sector contracted by its largest margin since 2023, raising fresh concerns about labor market softening. The drop suggests businesses may be pulling back on hiring as uncertainty around costs and demand increases.
Input prices surged during the month, reflecting persistent inflationary pressures that continue to challenge service providers ranging from healthcare and hospitality to finance and retail. Firms reported difficulties absorbing higher costs without passing them on to consumers.
Analysts warn that the combination of slowing growth, rising prices, and declining employment could complicate the Federal Reserve's efforts to calibrate monetary policy. Persistent services inflation has been a key obstacle to the central bank's goal of returning overall inflation to its 2% target.
The data adds to a mixed picture of the US economy in early 2025, as manufacturing has also shown signs of strain. Markets reacted cautiously to the report, with investors reassessing expectations for interest rate cuts later this year.
Economists say the months ahead will be critical in determining whether the services slowdown is a temporary blip or the beginning of a more sustained deceleration that could ripple across the broader economy.