Whalesbook
Services Sector Activity Slows
The U.S. services sector expanded at a slower pace in March, with the Institute for Supply Management's non-manufacturing purchasing managers' index slipping to 54.0 from 56.1 in February. This figure fell short of economists' expectations for a 54.9 reading, showing growth slowed.
Input Prices Surge to 13-Year High
Businesses reported a significant jump in input prices, with the ISM survey's prices paid index soaring 7.7 percentage points to 70.7. This marks the highest level since October 2022 and represents the largest percentage increase in over 13 years. Companies across various industries noted rising costs for fuel, construction materials, and other inputs, worsening inflation concerns.
Middle East Conflict Fuels Price Rises
The escalating conflict in the Middle East was a major concern for businesses surveyed. Threats to shipping routes like the Strait of Hormuz and rising war-risk surcharges are directly impacting logistics and energy costs. Global oil prices have surged by over 50%, pushing national average gasoline prices above $4 a gallon. This price surge is expected to show up in the upcoming March Consumer Price Index.
Jobs Data Mixed, Fed Rate Cut Prospects Uncertain
Services sector employment contracted, with the jobs measure dropping to its lowest point since December 2023. However, this contrasts with a stronger-than-expected rebound in broader U.S. job growth reported by the government. Despite mixed job signals, the inflation surge from global events and trade uncertainties strengthens expectations that the Federal Reserve will keep its benchmark interest rate unchanged for longer, delaying potential rate cuts.
Conflict Adds to Business Uncertainty
Businesses across sectors like wholesale trade and real estate pointed to the Middle East conflict as a major source of uncertainty. Wholesalers highlighted increased landed costs and threats to critical shipping lanes, while real estate firms noted the war adding to an already unstable macroeconomic climate. This uncertainty, combined with rising prices, creates a difficult situation for policymakers trying to balance economic growth and stable prices.