U.S. services sector sees modest growth in March amid surging inflation, supply bottlenecks

The U.S. services sector posted a modest growth in March amid surging inflation and continued supply bottlenecks, the Institute for Supply Management (ISM) reported Tuesday.

The Services Purchasing Managers' Index (PMI) registered 58.3 percent, 1.8 percentage points above February's reading, according to the latest Services ISM Report on Business. Any reading above 50 percent indicates the services sector is generally expanding.

"Inflation and supply chain issues have been among the top challenges for the service sector for months, and Russia's war on Ukraine has worsened both," Tim Quinlan and Shannon Seery, economists at Wells Fargo Securities, said in an analysis.

Despite these headwinds, they argued, "orders and activity both ramped up a bit and businesses are finally netting some new hires."

The ISM report showed that the Supplier Deliveries Index registered 63.4 percent, 2.8 percentage points lower than the February figure. A reading of above 50 percent indicates slower deliveries.

"We are still seeing raw material subcomponent shortages, transportation delays and price increases," said a business executive from the utilities industry.

The Prices Index registered 83.8 percent, up 0.7 percentage point from the February figure and its second-highest reading ever, slightly behind December 2021 (83.9 percent), the ISM report showed.

"Labor and inflation continue to push costs higher across the board for food and food-service supplies," said a business executive from the educational services industry.

A representative from the construction industry, meanwhile, noted that pricing pressures are stronger than ever due to the Russia-Ukraine war, and energy costs are skyrocketing.