Growth in the U.S. services sector slowed in March, with the Services Purchasing Managers Index (PMI) falling to 50.8%, according to the Institute for Supply Management’s latest Report On Business, released Thursday.

The reading marks a 2.7% drop from February’s 53.5% and represents the lowest PMI since June 2024. While the index remains above 50% — the threshold indicating growth — the rate of expansion has decelerated.

“March saw drops in the readings of three of the four subindexes that directly factor into the Services PMI,” said Steve Miller, chair of the ISM Services Business Survey Committee. “Only Business Activity saw an increase.”

The Business Activity Index rose to 55.9% in March, up from 54.4% in February. However, the Employment Index fell sharply into contraction territory, registering 46.2% — its lowest reading in six months. New orders also slowed, dropping to 50.4%, and supplier deliveries eased to 50.6%.

Survey respondents cited uncertainty over tariffs, government budget cuts, and cautious hiring as factors weighing on sentiment and operations. Reports of rising costs due to tariffs were widespread, particularly affecting construction materials, paper products, and imported goods.

Despite these concerns, the services sector has now expanded in 55 of the past 58 months, with growth continuing — albeit at a slower pace — in industries such as accommodation and food services, transportation, and finance.

The Prices Index, which tracks input cost inflation, remained elevated at 60.9%, though down from 62.6% in February. Inventories and inventory sentiment both stayed in positive territory, with some respondents reporting early purchases to avoid future price hikes.

ISM’s data is based on a monthly survey of supply executives across more than a dozen industries. A Services PMI above 48.6% over time is generally consistent with overall economic growth.

The next Services ISM Report On Business, reflecting April 2025 data, will be released May 5.