US Services Index Falters as Employment Shrinks Most Since 2023

US service providers expanded in March at the slowest pace in nine months as orders growth cooled and a measure of employment tumbled to the lowest since 2023.

Author of the article:

Bloomberg News

Vince Golle

Published Apr 03, 2025  •  3 minute read

A sustained trend of weaker employment readings may raise concerns of a broader slowdown in a labor market that has been the economy's bedrock. Photo by Nathan Howard /Photographer: Nathan Howard/Bloo

(Bloomberg) — US service providers expanded in March at the slowest pace in nine months as orders growth cooled and a measure of employment tumbled to the lowest since 2023.

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The Institute for Supply Management’s gauge of services dropped to 50.8 from 53.5 a month earlier, according to data released Thursday. The figure was weaker than all but one estimate in a Bloomberg survey of economists. Readings above 50 signal growth.

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The survey surfaces a day after President Donald Trump’s rollout of reciprocal tariffs that includes steep levies on several countries, including China and Vietnam. The sweeping increase in duties is aimed at redrawing global trade.

A gauge of services employment sank by 7.7 points, the most in nearly five years, to 46.2. Excluding the immediate aftermath of the pandemic, the monthly decline was the largest since a weather-induced slump in February 2014.

“It looks like most of the employment impact was not layoffs, and downsizing were reductions related to reduced business other than those sectors that are impacted by federal spending,”  Steve Miller, chair of the ISM Services Business Survey Committee, said on a call with reporters.

A month earlier, the employment index advanced to the highest level since the end of 2021. A Wednesday report showed private-sector hiring accelerated in March by more than projected in a fairly broad advance.

A sustained trend of weaker employment readings may raise concerns of a broader slowdown in a labor market that has been the economy’s bedrock. Meanwhile, the ISM prices-paid index eased slightly to a still-elevated 60.9 in March.

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“There has been a significant increase this month in the number of respondents reporting cost increases due to tariff activity,” Miller said in a statement.

 “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,” Miller said.

Ten industries reported growth in March, led by accommodation and food services, transportation and warehousing, as well as finance and insurance. Seven industries, including management and support services, contracted.

Orders Cool

The ISM orders index for service providers retreated nearly 2 points to 50.4, showing limited growth. At the same time, the group’s measure of business activity, which parallels its factory output gauge, increased to the highest level this year.

The decline in bookings may reflect the growing uncertainty many firms are experiencing as the Trump administration pushes forward with tariffs. Businesses are also awaiting lawmakers’ tax legislation expected later this year.

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Select ISM Industry Comments

“We remain optimistic about the coming months, despite recent news of possible recession and tariffs that have not played out yet.” — Accommodation & Food Services

“Starting to see effect of aluminum tariff. These costs will be passed on to customers.” — Construction

“Supply chains continue to operate effectively and few categories — including IV solutions — are showing signs of duress. Labor outlook is improving, with reliance on travel staff continuing to recede. Outlook for the duration of the quarter is favorable.” — Health Care & Social Assistance

“With a large amount of groundwood imported from Canada to the U.S., the tariffs and resulting delays have caused havoc with the supply chain and deliveries. U.S. mills are getting backlogged and late from the additional tonnage they’ve taken on.” — Information

“We are seeing some loosening in the U.S. economy related to hiring and people retention. Quality candidates are available, and employee turnover is decreasing.” — Professional, Scientific & Technical Services

“Government budget cuts and layoffs are negatively impacting our operations.” — Public Administration

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“We are still holding back some money for emergency use in case the new administration targets grant usage and puts a hold on current spending.” — Transportation & Warehousing

“We’re expecting price increases in the near future due to tariffs on several commodity-based contracts, including waterworks items.” — Utilities

“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.” — Wholesale Trade

Companies’ assessments of their inventory levels may also be playing a role. A gauge of inventory sentiment rose to the highest level since July, indicating a greater share see their stockpiles as too high. Also, service-firm exports contracted for time in four months.

—With assistance from Mark Niquette.

(Adds tariff announcement, comment from ISM’s Miller)

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