The ISM services report indicates that while activity in the services sector is holding steady, firms are no longer hiring, orders are slowing, and backlogged orders are decreasing.
The services ISM index fell to 50.8, a nine-month low, signaling near stagnation.
Despite this, Wells Fargo believes business activity showed slight improvement.
Service providers, like manufacturers, are impacted by tariff uncertainty, which is pushing prices higher, though the prices paid metric for services slightly declined in March.
Wells Fargo noted that order volumes and backlogs fell in March, with the latter slipping into contraction territory. Tariff-induced price pressures could contribute to stagflation, analysts said, where higher costs lead businesses to cut expenses, including labor, resulting in both inflation and rising unemployment.
Wells Fargo adds that while the labor market has shown some signs of stabilization, it remains weak, with the ISM employment component dropping significantly in March. While job cuts are rising, unemployment claims remain within normal ranges.
The forecast for March payroll growth has been lowered to 125,000, with further slowing expected in April, possibly below 100,000 jobs.