Dive Brief:
- The U.S. services sector slowed in March as the war in Iran snarled supply chains and fueled inflation, the Institute for Supply Management said Monday, describing survey results.
- The headline index for non-manufacturing companies slumped 2.1 percentage points to 54%, the ISM said, noting that a reading above 50% signals expansion. The employment index fell 6.6 percentage points to the lowest level since December 2023 — suggesting a slowdown in hiring — while a gauge of prices surged 7.7 percentage points to the highest level since October 2022.
- “The predominant commentary this month was about impacts and adjustments due to the conflict with Iran and the expected flow through of higher oil prices at some point,” Steve Miller, chair of ISM’s services business survey committee, said in a statement.
Dive Insight:
The Iran war has prompted CEOs and economists to warn of higher inflation, a slowdown in economic growth and an increase in unemployment if the conflict persists more than a few months.
The war creates “the potential for significant ongoing oil and commodity price shocks, along with the reshaping of global supply chains, which may lead to stickier inflation and ultimately higher interest rates than markets currently expect,” JPMorgan Chase CEO Jamie Dimon wrote Monday in his annual letter to shareholders.
Futures for Brent crude oil, the global benchmark, have rocketed by about 57% since the Feb. 28 start of the war, from $70 per barrel to $110 per barrel.
“Recent increases in fuel prices are having a substantial impact on the airline industry, resulting in significantly higher operational costs compared to pricing from just one month ago,” according to a respondent to the ISM survey.
The average price for a gallon of gasoline has surged about 38% since U.S. and Israeli warplanes began strikes on Iran — from $2.98 to $4.12.
Russia’s war in Ukraine and the Iran conflict are also scrambling global supply chains, including those linked to shipbuilding, food and farming, Dimon said.
Several private and public forecasters during the past month have pushed up their projections for inflation.
Consumer price inflation may accelerate back to about 4%, as indicated by the S&P Global Market Intelligence data, Chris Williamson, chief business economist at S&P Global, said in March.
The Paris-based Organization for Economic Cooperation and Development released a gloomier forecast, warning that headline inflation will surge this year to 4.2%, or more than twice the Federal Reserve’s target, as the Iran war pushes up energy costs.
“The skunk at the party — and it could happen in 2026 — would be inflation slowly going up, as opposed to slowly going down,” Dimon wrote.
Several ISM survey respondents also voiced concern about price pressures.
“A spike in inflation due to higher oil prices will reduce purchasing power, affecting every industry,” according to an executive with a real estate company.
