U.S. Services-Sector Activity Cools as Federal Layoffs, Tariffs WeighISM

By Ed Frankl

U.S. services-sector activity slowed in March, dragged down as layoffs accelerated in the federal government, alongside continued uncertainty over trade tariffs.

The Institute for Supply Management said Thursday that its index for services providers fell to 50.8 in March, from 53.5 in February, reaching its lowest point since June 2024.

Economists polled by The Wall Street Journal had expected a smaller decline to 52.9. The reading just above 50.0 points to the ninth consecutive month of expansion in activity.

March saw drops in the readings of three of the four broad subindexes that make up the main indicator, according to Steve Miller, chairman of ISM's Services Business Survey Committee.

Employment dropped into contraction territory for its first time in six months, while new orders expanded only marginally and supplier deliveries slowed, he said.

Meanwhile, the number of respondents reporting cost increases due to tariff activity increased significantly, he noted. The survey's prices index ticked down a little, but remained at an elevated level.

"Despite an increase in comments on tariff impacts and continuing concerns over potential tariffs and declining governmental spending, there was a close balance in near-term sentiment, between panelists with good outlooks and those seeing or expecting declines," he noted.

President Trump on Wednesday announced tariffs on imports of goods into the U.S. But while goods have been targeted as the U.S. runs a trade deficit in goods, it runs a surplus in services.

"Tariff confusion and the variety of ways that suppliers are responding have had a strong effect on our purchasing decisions this month, causing us to shift spend and in some cases buy in advance of reported tariffs," said one respondent to the survey from the wholesale trade industry.

"Government budget cuts and layoffs are negatively impacting our operations," said another from the public-administration sector.

While services continue to expand, albeit only slightly, ISM's own manufacturing-sector gauge released Tuesday showed industrial activity contracting in March.

Write to Ed Frankl at edward.frankl@wsj.com