Blitz Bureau
NEW DELHI: US services sector growth slowed in March, while prices paid by businesses for inputs increased by the most in more than 13 years, an early indication that the prolonged war with Iran was boosting inflation pressures.
The Institute for Supply Management survey on April 6 also showed services employment dropping to the lowest level since the end of 2023, which probably understates the health of the labor market as government data last week showed a sharp rebound in job growth. Businesses also reported strong order growth last month.
The Middle East conflict, now in its second month, dominated commentary in the ISM, with businesses ranging from construction to wholesale trade saying it had added an extra layer of uncertainty. Prior to the war, businesses had been dealing with uncertainty stemming from import tariffs. The survey reinforced economists’ expectations the Federal Reserve would keep interest rates unchanged for some time.
“The service sector is still expanding, but headwinds are picking up,” said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets.
“With employment softening and inflation pressures flaring up again, the data suggest slower growth alongside sticky price pressures. This keeps the Fed in a difficult position and reinforces the case for patience.” Thirteen service industries reported growth included wholesale trade, transportation and warehousing as well as mining, construction and utilities.
Political uncertainty The three reporting contractions were retail trade, agriculture, forestry, fishing and hunting, and public administration. Some businesses in the mining sector said “political uncertainty with the Iran conflict has resulted in less international business.” Companies in the real estate, rental and leasing industry said “the war in Iran has added an additional layer of uncertainty on top of an already shaky macroeconomic climate.”
Gasoline price above $ 4
The US-Israeli war with Iran has boosted global oil prices by more than 50%. The national average retail gasoline price has jumped above $4 a gallon for the first time in nearly four years. Economists expect the inflation hit from the war would show in the March Consumer Price Index report scheduled to be released soon.
