MW Economy jolted by Iran war. Inflation bubbles up and service companies curb employment.
By Jeffry Bartash
ISM price index jumps to highest level since 2022
Restaurants and other service-sector companies have been the drivers of a five-year-old economic expansion in the U.S. Here, the quick-service chicken Raising Cane's opens a new location in Los Angeles.
The largest part of the economy grew a bit slower in March as the Iran war drove up costs and companies reacted by reducing employment, suggesting a rockier path for the U.S. until the conflict ends.
A survey of service companies such as banks, retailers and restaurants slipped to 54% in March from 56.1% in the prior month, the Institute for Supply Management said Monday. The February reading was the highest in 31/2 years.
Still, any number above 50% is a sign that business is growing. The index has topped that key threshold for 21 months in a row.
Looking ahead, another strong increase in new orders indicate the huge services side of the economy is likely to continue to expand at an above-average pace because of steady sales in the U.S. More than 8 in 10 Americans work for service companies.
Service companies are less affected by global crises since most of their business is domestic.
Key details: New orders jumped to the highest level in three years. Improved weather contributed to the increase in demand. Customers with new annual budgets were also spending more freely.
"We're seeing some expansion across the services economy with stronger business activity and new orders," an executive at a professional firm was quotes as having told ISM.
On the downside, an index that measures prices, or inflation, shot up to the highest level since October 2022. Its increase represented the largest one-month rise in 13 years.
The cost of oil, fertilizer and other key chemicals has surged due to the partial closure of the Strait of Hormuz, a key shipping route off the coast of Iran.
"The war in Iran has added an additional layer of uncertainty on top of an already shaky macroeconomic climate," a senior real-estate executive said. "A spike in inflation due to higher oil prices will reduce purchasing power, affecting every industry."
Companies responding by curbing hiring or leaving open positions unfilled.
A measure of employment turned negative for the first time in four months, contrasting with a sharp increase in hiring shown in the official U.S. employment report for March.
Big picture: Business leaders were cautiously optimistic when the new year began, especially after the Supreme Court struck down President Donald Trump's reciprocal tariffs on goods imported to the U.S. as unconstitutional.
Yet fresh uncertainty has been caused by the replacement tariffs and higher inflation associated with the Iran war. The economy is still growing, but new headwinds suggest further progress is limited for now.
Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX rose in Monday trading.
-Jeffry Bartash
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(END) Dow Jones Newswires
April 06, 2026 10:47 ET (14:47 GMT)
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