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–ISM’s Miller: ‘Not Seeing Weakness in Services Sector’; Employment Subindex Slump ‘One-Month Blip’
By Max Sato
(MaceNews) – U.S. services sector expansion slowed but maintained underlying strength in March, led by another strong gain in new orders, but firms were also hit by a rapid and widespread spike in energy and commodities prices, particularly fuel and transportation costs, amid the Middle East conflict.
The purchasing managers index for services compiled by the Institute for Supply Management, which shows direction not the level of activity, slipped back 2.1 percentage points to 54.0 after jumping 2.3 points to a more than three-year high of 56.1 the previous month. The March reading is still the highest since 55.5 in October 2024.
The overall index is still 1.7 points above its 12-month moving average and stayed above the average for the sixth month in a row.
“I don’t think we are seeing weakness in the services sector at all,” ISM Services Business Survey Committee Chair Steve Miller told a briefing, downplaying the plunge in the employment subindex in March as a “one-month blip.”
“Overall, we are seeing economic strength,” he said. “Nine of the 10 subindexes are still in expansion territory.”
The services sector is now in expansion for 21 months in a row while manufacturing activity expanded for the third straight month in March, gradually emerging from the tariff-triggered doldrums of 2025.
“The prices index increased, as expected, amid higher oil and fuel costs, and the supplier deliveries index indicated slower performance compared to February, also unsurprisingly with shipping issues and flight disruptions due to the Middle East conflict and winter weather,” Miller said in a statement. “Continuing strength in business activity, new orders and backlog of orders are positive economic signals, so the employment index dropping to its lowest level since December 2023 (43.5) was a surprise.”
There are other signs of economic strength. Exports and imports have expanded for two months in a row for the first time since September and October 2024, he added.
The “majority” of the prices index surging to a more than three-year high in March came from the direct impact of the Mideast war that triggered a spike in oil and gas prices, Miller told reporters, although there is still upward pressure on the prices of steel and aluminum (their import duties remain high) and new pressure on lumber and wood.
There is an “inventory buildup” among service providers in February and March to withstand supply chain disruptions or short-term oil price impacts, similar to the move seen from February to April last year just before the Trump tariffs kicked in, although companies are “comfortable” with the levels of their inventories, Miller said.
Other comments by Miller at the briefing:
– The ISM employment sub-index tends to lead two to four months ahead of the official monthly employment data released by the Bureau of Labor Statistics; seeing a short-term shock from reduced travel, tourisms or more cautious behavior (“fear of the unknown”).
– The services sector is mainly hit by a spike in transportation costs (surcharges are stipulated in agreements); there are fewer concerns expressed about a future, potential rise in other costs.
– The March report showed an “extreme focus” on the Mideast-triggered energy cost spike; it might have led firms to artificially comment less on the lingering tariff impacts.
– Only a small number of survey respondents commented on the effects of the tariffs in March, “much, much smaller” than three to four months ago.
– If companies were seeing a 10% to 20% rise in costs, they could delay passing onto customers as with the initial phase of tariffs, but they are seeing a much higher increase.
– The cost spike is so immediate and widespread that “I’m expecting a follow-through”; if firms see a 50% rise in costs, they will have to pass it along.
Last month, Miller told reporters that tariff impacts had stabilized and were now embedded in supply chain costs, noting that comments by ISM member firms indicated that “services companies have developed capabilities to routinely address shifts in tariff policies.” The overall drag from the tariffs on the services sector is “relatively modest” compared to that on the manufacturing sector.
“The war in Iran has added an additional layer of uncertainty on top of an already shaky macroeconomic climate,” a firm from the real estate, rental and leasing industry told the ISM in the March report. “A spike in inflation due to higher oil prices will reduce purchasing power, affecting every industry.”
A company from the transportation and warehousing category pointed to the rapid natures of the latest price hikes: “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.”
Three of the four sub-indexes that directly factor into the services PMI were in expansion territory (February figures in parentheses). Nine of the 10 sub-indexes showed expansion.
Business activity 53.9 (59.9) -6.0, the lowest since 49.9 in September 2025 after hitting the highest since May 2024 (also 59.9) in February.
New orders 60.6 (58.6) +2.0, the highest since 61.6 in February 2023, follows a 5.5-point gain in February.
Employment 45.2 (51.8) -6.6, the lowest since 43.7 in December 2023; the last contraction was seen in a six-month period to November 2025.
Supplier deliveries 56.2 (53.9) +2.3, the slowest since 56.4 in October 2024, as in January (54.2) was the slowest since 56.4 in October 2024 (above 50 means slower deliveries)
Among other sub-indexes:
Prices 70.7 (63.0) +7.7, the highest since 70.7 in October 2022 after hitting the lowest since March 2025 (60.9) in February; above 60 for 16 months in a row
Backlog orders 53.6 (55.9) -2.3, the February reading was the first expansion in 12 months.
–February Household Spending Seen Sluggish amid Falling Real Wages; March Producer Inflation to Tick Up on Higher Energy Costs
By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week in the new fiscal year that began on April 1.
Bank of Japan branch managers will provide their latest assessments of regional economies including how the Mideast conflict is affecting households and firms, following the release last week of the bank’s Tankan business survey for the March quarter. The Iran war that broke out in late February appears to have had only a limited immediate impact on many sectors in the Tankan data.
The Tankan showed a slight improvement in sentiment among large manufacturers, led by non-ferrous metal producers, production machine makers and the auto industry, indicating that firms are generally weathering the drag from stiff U.S. tariffs, but major refineries turned sharply pessimistic in the face of a spike in global crude oil prices.
Higher energy and labor costs also mildly dampened confidence among cost-sensitive sectors among non-manufacturers, namely transport firms/postal services as well as providers of electricity and natural gas. Weaker tones in those sectors offset upbeat views among large hotels/restaurants and leasing firms, leading to a flat March reading for non-manufacturer sentiment.
BOJ board members will digest these pieces of data and other anecdotal evidence when they update their medium-term inflation and growth forecasts as well as risk analysis in its quarterly Outlook Report to be issued after the next policy meeting on April 27-28.
The board is expected to predict that in the second half of its new projection period (fiscal 2026 through fiscal 2028), underlying CPI inflation and the rate of increase in the core CPI (excluding fresh food) should increase gradually and will be “at a level that is generally consistent with the (2%) price stability target.”
The focus is on whether board members will place more importance to supporting growth in the face of rising energy costs or seek to prevent underlying inflation from surging. The board could decide to raise rates at the April meeting but Governor Kazuo Ueda told reporters after March meeting that he needed more time to assess the impact of heightened geopolitical risks.
At its March 18-19 meeting, the nine-member board decided in an 8 to 1 vote to leave the target for the overnight interest at 0.75% following no change in policy by an 8 to 1 vote in January. In December, the bank raised the key rate by 25 basis points (0.25 percentage point) to a 30-year high in a unanimous vote after standing pat at the previous five meetings.
On the data front, household spending is expected remain sluggish in February amid falling real wages. Producer inflation is forecast to pick up in March on higher energy prices and the weak yen that is keeping imports costly after slowing to a nearly two-year low in February thanks to easing farm produce prices.
Monday, April 6
Bank of Japan branch managers gather at the bank’s head office for a quarterly meeting at which they discuss their regions’ economic and financial conditions. In their last assessment released on Jan. 8, all nine regions reported that their respective economies had been either “recovering moderately,” “picking up” or “picking up moderately, although some weakness had been seen in part.”
Tuesday, April 7
0830 JST 0830 JST (2330 GMT/1930 EDT Monday, April 6) The Ministry of Internal Affairs and Communications releases February average household spending.
Retail sales posted their first year-on-year drop in two months, down a slight 0.2% in February, in payback for a high level of auto sales in February 2025 and a 10th straight drop in fuel sales. The impact of the Mideast conflict has been largely limited as the government continues to limit energy price hikes with subsidies to refineries and electric power suppliers.
Department store sales rose 1.6% on year in February after rebounding 2.3% in January, led by demand for spring clothing in milder weather. Sales to visitors from overseas marked their fourth straight drop as Chinese tourists continued boycotting Japan over bilateral diplomatic rows, although spending by visitors from Taiwan, Thailand and Malaysia picked up some of the slack.
Tuesday, April 7
1400 JST (0500 GMT/0100 EDT Tuesday, April 7) The Bank of Japan releases the February supply-side consumption activity index.
The index rebound a seasonally adjusted 0.4% on the month in January after slipping 0.2% in December and rising 0.7% in November. It rose 0.5% on the October-December period after being nearly flat (-0.0%) in the previous quarter.
Figures exclude inbound tourism consumption but include outbound tourism spending.
Wednesday, April 8
0830 JST 0830 JST (2330 GMT/1930 EDT Tuesday, April 7) The Ministry of Health, Labour and Welfare releases preliminary February average wages.
Total average cash earnings per regular employee in Japan rose a nominal 3.0% on year in January after rising 2.4% in December, led by a solid gain in base wages and a jump in both overtime and winter bonuses.
But real average wages remain weak, rising 1.4% for the first increase in 13 months after falling 0.1% in December and slumping 1.6% in November. In 2025, real wages marked their fourth consecutive annual drop, down 1.3%.
Wednesday, April 8
1400 JST (0500 GMT/0100 EDT Tuesday, April 7) The Cabinet Office releases the March Economy Watchers’ Survey conducted from March 25 until March 31. The March report is expected to show flat to softer readings amid higher energy and commodities prices triggered by the Mideast conflict. The February survey results were only partially affected by the Iran war that broke out on Feb. 28.
The Watchers’ sentiment index indicates the direction of Japan’s current economic climate rose to a nearly two-year high of a seasonally adjusted 48.9 in February from 47.6 in January, ending three months of decline. The index has stayed under the key 50 line for nearly two years. It was last above the neutral line in March 2024 (50.1).
The Watchers’ outlook index, which projects sentiment in two to three months, slipped to 50.0 in February after rising to 50.1 in January from 49.5 in December. The index surged to 52.2 in October from 48.4 in September, returning to positive territory for the first time since August 2024 (50.2).
Thursday, April 9
1400 JST (0500 GMT/0100 EDT Wednesday, April 8) The Cabinet Office releases the March Consumer Confidence Survey.
The confidence index jumped a seasonally adjusted 2.1 percentage points on the month to 40.9 in February after edging up 0.7 point to 37.9 in January to hit the highest level since April 2024 (38.2) and dipping 0.3 point in December for the first drop in five months. The increase was led by more upbeat views on overall livelihood (+2.9 point), income growth (+0.5), employment (+1.6) and willingness to buy durable goods (+3.5).
Last month, the Cabinet Office upgraded its assessment to say that consumer confidence was “showing signs of improvement” vs. “picking up.” It noted that the index’s three-month moving average rose 0.9 point to post the ninth straight rise.
Friday, April 10
0830 JST (2350 GMT/1930 EDT Thursday, April 9) The Bank of Japan releases the March corporate goods price index.
Mace News median: CGPI +2.2% y/y (range: +1.9% to +3.8%) vs. Feb +2.0%; +0.5% m/m (range: +0.2% to +2.1%) vs. Feb -0.1%
Producer inflation in Japan is expected to accelerate slightly to 2.2% in March from 2.0% in February as rising tensions in the Middle East pushed oil product prices higher following three consecutive months of deceleration through February on easing farm produce prices.
The projected 2.2% increase in the corporate goods price index would be still lower than 2.3% seen in January. The recent low figures are the slowest since 1.2% in April 2024. Producer prices have eased gradually in recent months after having hit a recent peak of 4.3% in each of February and March 2025 (the highest since 4.5% in June 2023).
On the month, the CGPI is forecast to post a seventh straight increase, up 0.5% following a 0.1% gain the previous month.
Consensus outlook for Mace News
Tuesday, April 7, 2026
0830 JST (2350 GMT/1930 EDT Monday, April 6) The Ministry of Internal Affairs and Communications releases the February average household spending.
Mace News median forecasts: -0.8% y/y (range:-2.9% to +0.5%) vs. Jan -1.0%; +2.3% m/m (range: -0.9% to +3.9%) vs. Jan -2.5%
By Chikafumi Hodo
TOKYO (MaceNews) – Japan’s real household spending is expected to fall year over year for a third consecutive month in February amid signs of a broad slowdown in department store and supermarket sales, as well as declines in new passenger car registrations. The trend is underscored by February retail sales data, which posted the first year-over-year decline in two months.
Consumers remain cautious as real wages continue to fall. Recent spending trends suggest households are simplifying ceremonies and cutting back on weddings and funerals, while prioritizing food and other daily necessities. There is also a widespread shift toward more affordable mobile communication plans.
Household spending in February is expected to fall 0.8% from a year earlier after a 1.0% decline in January. The January drop was driven by a 10th consecutive year-on-year decline in both gift-related spending and mobile communication charges, as well as volatility in private university tuition fees.
Still, household spending is expected to rise for the first time in three months, increasing 2.3% month-on-month in February after slipping 2.5% in January.
–February Household Spending Seen Sluggish amid Falling Real Wages; March Producer Inflation to Tick Up on Higher Energy Costs By Max Sato (MaceNews) – Here
Consensus outlook for Mace News Tuesday, April 7, 20260830 JST (2350 GMT/1930 EDT Monday, April 6) The Ministry of Internal Affairs and Communications releases the
Consensus outlook for Mace News Friday, April 10, 2026 0850 JST (2350 GMT/1950 EDT Thursday, April 9) The Bank of Japan releases the March corporate
–ISM’s Spence: New Orders Creeping Back Down Toward Neutral, Widespread Price Hikes ‘Very Concerning’ By Max Sato (MaceNews) – U.S. manufacturing activity expanded for the
– War Exerts “Upside Risks’ On Inflation, ‘Downside Risks’ On Employment – Must Be ‘Mindful’ To Keep Inflation Expectations ‘Anchored’ By Steven K. Beckner (MaceNews)
By Max Sato (MaceNews) – Here are the key Japanese events for the coming week. Lawmakers are set to approve a stop-gap budget to ensure
By Chikafumi Hodo Tuesday, March 310850 JST (2350 GMT/1950 EDT Monday, March 30) The Ministry of Economy, Trade and Industry releases preliminary February industrial production,
By Chikafumi Hodo Tuesday, March 310830 JST (2330 GMT/1930 EDT Monday, March 30) The Ministry of Internal Affairs and Communications releases March, fiscal 2025 average
Contact Mace News President
Tony Mace tony@macenews.com
to find a customer- and markets-oriented brand of news coverage with a level of individualized service unique to the industry. A market participant told us he believes he has his own White House correspondent as Mace News provides breaking news and/or audio feeds, stories, savvy analysis, photos and headlines delivered how you want them. And more. And this is important because you won’t get it anywhere else. That’s MICRONEWS. We know how important to you are the short advisories on what’s coming up, whether briefings, statements, unexpected changes in schedules and calendars and anything else that piques our interest.
No matter the area being covered, the reporter is always only a telephone call or message away. We check with you frequently to see how we can improve. Have a question, need to be briefed via video or audio-only on a topic’s state of play, keep us on speed dial. See the list of interest areas we cover elsewhere
on this site.
—
You can have two weeks reduced price no-obligation trial for $199. No self-renewing contracts. Suspend, renew coverage at any time. Stay with a topic like trade while its hot and suspend coverage or switch coverage areas when it’s not. We serve customers one by one 24/7.
—
Tony Mace was the top editorial executive for Market News International for two decades.
Washington Bureau Chief Denny Gulino had the same title at Market News for 18 years.
Similar experience undergirds our service in Ottawa, London, Brussels and in Asia.
