March Business Activity Hits 11-Month Low as Middle East Conflict Drives Up Costs

A new survey reveals American business activity dropped to its lowest point in nearly a year during March, driven by rising energy costs from the Middle East war. Companies reported higher input costs and reduced hiring as economic uncertainty grows.

WASHINGTON – American business activity declined to its weakest level in nearly a year during March, according to a new survey that links the downturn to escalating costs from the ongoing Middle East conflict.

The latest data from S&P Global reveals concerning trends for the national economy, as companies face mounting pressure from higher energy prices and supply chain disruptions stemming from the war between the U.S.-Israel alliance and Iran.

Chris Williamson, chief business economist at S&P Global Market Intelligence, described the findings as troubling. “The flash PMI survey data for March signal an unwelcome combination of slower growth and rising inflation following the outbreak of war in the Middle East,” Williamson explained. “Companies are reporting a hit to demand from the additional uncertainty and cost-of-living impact generated by the conflict.”

The research firm’s flash U.S. Composite PMI Output Index, which measures both manufacturing and services activity, dropped to 51.4 in March – marking the second consecutive monthly decline. This represents the weakest performance since April of last year, falling from February’s reading of 51.9.

While any reading above 50 still indicates private sector growth, the downward trend has economists concerned. The services sector drove much of the decline, with its PMI falling to 51.1 from the previous month’s 51.7. Industry experts had predicted a smaller drop to 51.5.

Manufacturing bucked the negative trend, however, with activity improving to 52.4 from February’s 51.6. This increase surprised analysts who had forecast a decline to 51.3, with some improvement attributed to what researchers called “some softening of the tariff impact on order books.”

The conflict’s impact on energy markets has been severe, with oil prices jumping more than 30% and national gasoline prices climbing nearly $1 per gallon. These increases have reignited inflation concerns that had been easing in recent months. Oil prices did retreat to one-week lows Monday after President Trump announced a five-day delay in potential military action against Iranian energy facilities.

Business owners are feeling the pinch directly, according to the survey data. The measure tracking input costs paid by companies surged to 63.2 this month, up from 60.0 in February. Both service providers and manufacturers reported higher expenses, which S&P Global said were “widely linked to the war-related spike in energy costs and tightening supply conditions.”

These increased costs aren’t staying with businesses – they’re being passed along to consumers. The survey’s output price gauge climbed to 58.9 from February’s 56.9, with researchers suggesting this could push consumer inflation back toward 4%.

The employment picture also darkened, with private-sector job creation turning negative for the first time in over a year. The employment index fell to 49.7 from 50.4, primarily due to service sector companies cutting positions to reduce “overheads in the uncertain economic climate.”

Federal Reserve officials are closely monitoring these developments after keeping interest rates steady last week while projecting higher inflation and only one rate cut this year. The central bank faces a challenging balancing act between controlling inflation and supporting economic growth.

“The Fed will therefore need to juggle these intensifying upside risks to inflation against the growing risk of the economy losing growth momentum, with much depending on the duration of the war and its impact on energy prices and global supply chains,” Williamson noted.