Business activity in the United States continued to expand in March 2025, according to new data from S&P Global’s flash Purchasing Managers’ Index (PMI). The composite output index rose to 53.5, up from 51.6 in February, marking the strongest pace of growth since June 2023. The gain was led primarily by the services sector, which benefited from improved weather conditions and a rebound in consumer demand. However, while current output metrics were positive, business sentiment deteriorated sharply, underscoring mounting concerns over economic headwinds.
The latest PMI data reveals a complex picture. On the one hand, the uptick in services activity reflects underlying economic resilience. Businesses in leisure, hospitality, and professional services reported increased orders and higher customer footfall as seasonal trends normalized. Manufacturing, however, showed signs of weakness, with the manufacturing PMI falling to 49.8, down from 52.7 in the prior month. This contraction reflects reduced factory output, partly due to import cost pressures and weakening export orders.
Input cost inflation reemerged as a significant challenge for companies across sectors. The input price index surged to 60.9, its highest level since mid-2023, driven by rising wages, logistics costs, and tariff-related increases in raw material prices. Many firms reported having to pass some of these costs onto consumers, resulting in higher final selling prices. This resurgence in inflationary pressure raises new concerns about the Federal Reserve’s ability to ease monetary policy in the near term.
Business confidence fell to its second-lowest level since 2022, with many executives citing growing uncertainty over trade policy, including fears of expanded import tariffs. Companies also flagged potential government spending cuts as a major downside risk, particularly those operating in sectors reliant on public contracts or federal infrastructure funding. The PMI survey indicated that, despite ongoing growth, firms are becoming more cautious about capital investment and hiring.
Employment growth remained tepid in March. The jobs index rose only slightly to 50.6, barely above the neutral threshold that separates expansion from contraction. This suggests businesses are hesitant to add headcount amid an environment of rising costs and policy ambiguity. Analysts interpret the flat hiring trend as a sign that employers are adopting a wait-and-see approach ahead of further economic developments.
Overall, the March PMI data signals that the U.S. economy continues to grow, but the underlying momentum is fragile. Rising input costs and weakening sentiment may weigh on investment decisions in the months ahead. As businesses grapple with inflation and the possibility of new trade restrictions, the economic outlook for the second quarter remains uncertain. With the Federal Reserve facing the dual challenge of supporting growth while keeping inflation in check, policymakers will likely watch the next rounds of PMI and inflation data closely before making any adjustments to interest rates.
