The latest ISM Non-Manufacturing Report reveals continued expansion in the U.S. services sector, though at a slightly slower pace than previous months. The Non-Manufacturing Index (NMI) registered 56.1 in March, down 3.6 percentage points from February's reading but still well above the 50-point threshold that separates expansion from contraction.
Key Indicators Suggest Sustainable Growth Path
March marked the 110th consecutive month of expansion for the non-manufacturing sector, demonstrating remarkable resilience in the face of global economic uncertainties. While the headline NMI figure declined from February's robust performance, analysts emphasize that the current level represents a more sustainable growth trajectory.
"This isn't a flattening process, but rather a move toward more sustainable growth," said Tony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee. "Any reading above 50 is positive, and we're seeing healthy expansion across most industries."
Sector Performance: Broad-Based Growth With Exceptions
Of the 18 non-manufacturing industries tracked by ISM, 16 reported growth in March. The strongest performers included:
- Construction (benefiting from infrastructure spending)
- Healthcare and social assistance (driven by demographic trends)
- Professional, scientific and technical services
- Finance and insurance
- Transportation and warehousing
Only two sectors - educational services and retail trade - contracted during the period, reflecting structural challenges in these industries.
Underlying Metrics Show Mixed Signals
The report's sub-indices presented a nuanced picture:
- Business Activity: Fell 7.3 points to 57.4 but remained in expansion
- New Orders: Declined 6.2 points to 59.0
- Employment: Rose 0.7 points to 55.9
- Prices: Increased 4.3 points to 58.7
The employment index's modest gain highlights ongoing labor market tightness, with many businesses reporting difficulty finding qualified workers. Wage pressures continue to build as employers compete for talent.
Inflation and Trade Considerations
Price increases were primarily attributed to rising fuel costs, suggesting contained inflationary pressures overall. Nieves noted that trade tensions appear to have moderated somewhat, with potential for further improvement if U.S.-China negotiations progress.
Business respondents cited both challenges and opportunities, with one hospitality company reporting labor shortages while a management services firm welcomed temporary tariff relief.
Long-Term Outlook Remains Positive
Despite the moderation in growth rates, analysts maintain an optimistic view of the non-manufacturing sector's prospects. The current expansion cycle, now in its 110th month, continues to demonstrate unusual longevity compared to typical three-year economic cycles.
Nieves emphasized that while the economy may not sustain the exceptionally high growth rates seen in recent months, the fundamentals remain sound. "The baseline is still moving in the right direction, just at a less rapid pace," he said.
The report suggests the U.S. services sector is navigating toward sustainable growth after a period of exceptional performance, with most industries continuing to expand despite facing labor constraints and modest inflationary pressures.