The headline ISM services PMI figure rose to 58.3 in March from 56.5 in the previous month. Business activity rose slightly from 55.1 to 55.5, prices paid from 83.1 to 83.8, new orders 56.1 to 60.1, employment from 48.5 to 54. If we look at the impact of the latest developments arising from the Ukraine war and the rising cost of living on the service sector in March, it can be said that it has a satisfactory course in terms of activity and a more stable but high course in terms of inflation pressures.

 

Service industry expansion had stagnated earlier in the year as omicron spread rapidly. We have seen that the index value of February is reflected in the form of a significant decrease. A sharp recovery is observed in March as the economy reopens. The increase from the easing of COVID-19 containment measures appears to have offset the increasing cost pressures and supply chain constraints exacerbated by the Ukraine crisis. Therefore, the negative impact of the Ukraine war on growth is moderate for the US for now. The March employment report showed that hiring in the services sector was continuing at a solid pace, and we see this confirmed in the details inside the ISM. Input cost inflation pressures continue at a near-record rate. There is also stronger production and demand growth. New order growth is running at strong momentum, reflecting the reopening of the economy from COVID-19 containment measures.

 

After renewed supply chain disruptions, delivery times will be expected to be extended. Of course, it is necessary to look at the transition period in terms of the state of the ongoing supply constraints and the corresponding prices and production effect. In fact, a recession signal is not reflected in current indicators, as indicated by the yield spread narrowing in the bond market. At this point, it should be noted that the 2y-10y spread followed by the market and the 3m/10y spread followed by the Fed do not send the same signal.

 

While the developments regarding the Ukraine war are quite uncertain, its impact on inflation and thus central bank policy is being watched. The relaxation of COVID-19 restrictions, which reduced the impact of rising costs on commercial activities for advanced economies in March, has a positive effect on activity and therefore growth. The impact of increasing price pressures on consumers remains a sensitive issue. This is especially important against the backdrop of more hawkish central bank stances being adopted around the world, putting inflation pressures associated with already rising operating costs at the fore.

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