Core Data Overview

  • A survey released by the Institute for Supply Management (ISM) on Monday showed that U.S. services sector expansion slowed in March, mainly due to the Iran war disrupting supply chains and pushing up inflationary pressures.
  • The ISM said its non-manufacturing composite index fell 2.1 percentage points to 54%, with readings above 50% indicating expansion in the sector. The employment index dropped 6.6 percentage points to its lowest level since December 2023,suggesting a slowdown in hiring activity; meanwhile, the prices index surged 7.7 percentage points to its highest level since October 2022.
  • "Respondents' comments this month were primarily focused on the impacts and adjustments stemming from the Iran conflict, as well as expectations that rising oil prices will eventually transmit through to the economy," said Steve Miller, chair of the ISM Services Business Survey Committee, in a statement.

Background Analysis

The Iran war has prompted corporate executives and economists to warn that if the conflict lasts more than a few months, it could push up inflation, weigh on economic growth, and drive unemployment higher.

JPMorgan Chase CEO Jamie Dimon wrote in hisannual letter to shareholdersreleased on Monday that the war "could lead to sustained and significant commodity and oil price shocks and reshape global supply chains, thereby making inflation more sticky and ultimately keeping interest rates higher than markets currently expect."

Since the war broke out on February 28, the global benchmarkBrent crude oil futuresprice has surged from $70 per barrel to $110, an increase of about 57%.

One respondent participating in the ISM survey said: "The recent rise in fuel prices has had a substantial impact on the airline industry, with operating costs rising significantly compared to a month ago."

Since U.S. and Israeli warplanes launchedairstrikesagainst Iran, the average U.S. gasoline price hasrisen about 38%, from $2.98 per gallon to $4.12.

Dimon also noted that Russia's war in Ukraine and the Iran conflict are similarly disrupting global supply chains across sectors including shipbuilding, food, and agriculture.

Inflation Expectations Raised

Over the past month, several private and public forecasting institutions have raised their inflation expectations. Chris Williamson, chief business economist at S&P Global, said in March that based on S&P Global Market Intelligence data, consumer price inflation could re-accelerate to around 4%.

The Paris-based Organisation for Economic Co-operation and Development (OECD), meanwhile, issued a more pessimistic forecast, warning that overall inflation will rise to 4.2% this year as the Iran war pushes up energy costs—more than double the Federal Reserve's target level.

Dimon wrote: "The uninvited guest at the party—possibly arriving in 2026—will be inflation drifting higher, not lower."

Several ISM survey respondents also expressed concerns about price pressures. One real estate company executive said: "The inflation surge triggered by rising oil prices will erode purchasing power, which will in turn affect all industries."