U.S. March ISM Non-Manufacturing Index drops to 54, with the Prices Paid Index reaching the highest since October 2022

Is Convergence Between AI and ISM and S&P PMI Indicating That Economic Momentum Is Truly Weakening?

In the U.S., the March ISM Non-Manufacturing Index came in at 54. While it has remained in the expansion zone for the 21st consecutive month, it fell short of the market expectation of 54.9 and also dropped noticeably from the prior value of 56.1. On the surface, the services sector is still expanding, but structural divergence is intensifying, revealing a clear break in economic momentum.

Subcomponent data: “three-way divergence” among growth, inflation, and employment

Looking at the subcomponents, this report shows a typical “mixed picture” structure:

New orders are performing strongly. The new orders index rose to 60.6 in March, the highest level since February 2023, indicating that demand remains resilient.

Price pressure is rising significantly. The prices index jumped to 70.7, the highest level since October 2022, and has been above 60 for 16 straight months, reflecting that inflation stickiness remains strong.

Employment suddenly weakened. The employment index fell to 45.2, entering the contraction zone for the first time in four months, and also the lowest level since December 2023—making it the most obvious “weak spot” in this report.

Economic activity is slowing, but not yet turning to contraction

The business activity index dropped sharply from 59.9 to 53.9, the lowest level since September 2025, indicating that growth momentum in the services sector has clearly cooled.

At the same time, the suppliers’ delivery index rose to 56.2, meaning deliveries are slowing down—typically associated with rising demand and supply-chain pressure. The inventories index fell to 54.8, but firms are still actively replenishing inventories to cope with potential supply shocks. The backlog of orders index remains in expansion, but it has cooled somewhat, showing that demand is still there, but the margin is weakening.

Overall, the economy is still expanding, but “the pace is clearly slowing.”

External shocks intensify uncertainty: oil prices and geopolitics become key variables

The report shows that companies generally cite pressure from rising energy prices. Prices for gasoline and diesel are rising, while prices for commodities such as lumber, copper, and steel are also increasing.

Companies are also proactively increasing inventories to prepare for potential supply-chain disruptions. The main reasons include: heightened tensions in the Middle East (especially involving Iran); disruptions to shipping and air transport; and winter weather affecting logistics.

By contrast, tariff factors are still mentioned, but they are no longer the main contradiction—geopolitical shocks are becoming the new dominant variable.

Converging with S&P Global PMI: the real condition of the services sector is coming into view

Over the past six months, the trends of S&P Global and ISM services-sector PMIs have diverged significantly: the former has been weakening all the way, while the latter has held at high levels.

But this divergence began to narrow in March: S&P Global services-sector PMI has fallen into the contraction zone; the ISM services-sector PMI has also dropped in tandem to 54. Analysts believe that the “re-alignment” of the two indicators suggests that the resilience previously signaled by ISM may have been overestimated, and the real condition of the services sector is gradually emerging.

Chris Williamson, Chief Economist at S&P Global, said the U.S. economy is facing double pressure from rising prices and increasing uncertainty.

“PMI survey data show that the U.S. economy is facing pressure from rising prices and intensifying uncertainty. The Middle East war further amplifies market concerns about policy decisions in the near term, especially those related to tariffs.”