US services sector unexpectedly rises to three-month high

The S&P Global US Services PMI rose to 54.3 in March 2025, its highest level in three months, up from 51 in February and surpassing market expectations of 50.8, according to preliminary data.

US services sector unexpectedly rises to three-month high

This increase indicates a strong rebound in service sector output after it hit a 15-month low in February. The improvement was largely driven by stronger business inflows, enhanced customer demand, and better weather conditions, which helped lift the sector from its recent slump. However, export sales continued to be a weak spot, declining for the third consecutive month, as external demand remained subdued amid global economic uncertainties. On the employment front, hiring showed a slight uptick in March, reversing the modest decline seen in February. Nevertheless, job growth remained sluggish as companies remained cautious about expanding their workforce due to ongoing demand uncertainty and broader economic risks.

Input costs surg to an 18-month high

Input costs surged to an 18-month high, driven by higher material costs and inflationary pressures. This rise in input costs translated into a modest increase in selling prices, as businesses attempted to maintain competitiveness in a weak demand environment. Despite these price hikes, firms remained cautious, reflecting a reluctance to pass on too much of the cost burden to consumers in the face of uncertain demand conditions.

Business confidence keeps on declining

Business confidence in the service sector, however, continued to decline for the third consecutive month, hitting its second-lowest level since October 2022. Companies expressed concerns over the potential negative impact of federal spending cuts, tariffs, and broader policy changes on both demand and financial market stability. With these concerns lingering, service sector firms are likely to proceed with caution, particularly as they navigate an unpredictable economic landscape. Investors and policymakers will continue to monitor these trends closely for signals of sustained recovery or further stagnation in the services sector.