US Services Sector Expands, Tariff Concerns Strain Confidence

Business activity in the US services sector picked up pace in March, recovering from a slower February as stronger customer demand helped fuel growth.

However, ongoing concerns about government policy, especially around tariffs, put pressure on business sentiment, which dropped to its second-lowest level since late 2022.

S&P Global Services PMI Rises to 54.4

The S&P Global US Services PMI rose to 54.4 in March, up from 51.0 in February, indicating continued expansion in the sector since early 2023. The growth was largely driven by an increase in new orders, supported by resilient domestic demand and unusually warm weather. Foreign sales saw only slight improvement, following previous declines earlier in the year.

Modest Hiring with Uncertainty

Employment in the service sector increased for the third time in four months, though the pace remained modest. Businesses continued to hire cautiously, reflecting a mix of solid demand and growing concerns over economic uncertainty, particularly surrounding federal spending cuts and tariff impacts.

Input Costs Surge, Price Pressures Build

Operating expenses rose at the fastest pace in 18 months, driven largely by rising labor costs and supplier price increases, many of which were linked to tariffs. Despite this, businesses were limited in their ability to pass on higher costs to customers, as competitive pressures kept selling price inflation below trend levels.

Sentiment Remains Fragile

While businesses expressed optimism about future economic conditions, confidence was restrained by policy uncertainty. Worries about federal fiscal tightening and trade policy disruptions continued to cloud the outlook, even as overall activity levels remained healthy.

Source: S&P Global

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