Why This Matters to Distributors: Rising costs, slower supplier performance and weakening labor conditions are converging at a time of steady demand, forcing distributors to intensify pricing discipline, inventory planning, and supplier risk management to protect margins and service levels.
Growth in the U.S. services sector slowed in March as inflation pressures accelerated and hiring declined, creating a more challenging operating environment for wholesale distributors and other supply chain participants, according to the latest report from the Institute for Supply Management.
The ISM Services Purchasing Managers Index registered 54.0 in March, down 2.1 percentage points from 56.1 in February, marking the 21st consecutive month of expansion. A reading above 50 indicates growth.
The decline was driven by weaker business activity, even as demand remained strong. The Business Activity Index fell to 53.9 from 59.9, its lowest level since September 2025. At the same time, the New Orders Index rose to 60.6, its highest reading since February 2023, signaling continued demand across service-based and distribution-linked sectors.
For distributors, the divergence between slowing activity and rising orders suggests continued pressure on fulfillment operations, inventory positioning, and service levels.
“The Services PMI registered 54%, its second-highest reading since October 2024,” said Steve Miller, chair of the ISM Services Business Survey Committee. Labor conditions weakened notably. The Employment Index fell to 45.2, down from 51.8 in February and its lowest level since December 2023, indicating contraction after three months of expansion.
That decline is particularly relevant for distributors, many of whom rely on warehouse labor, drivers, and customer service teams to maintain service levels as order volumes fluctuate.
At the same time, cost pressures intensified sharply. The Prices Index jumped 7.7 percentage points to 70.7, its highest level since October 2022 and one of the largest monthly increases in more than a decade.
Respondents cited rising fuel, energy, and materials costs, including increases in lumber, copper, and steel — key categories for distributors serving construction, industrial and infrastructure markets.
Supply chain conditions also tightened. The Supplier Deliveries Index rose to 56.2, indicating slower deliveries for the 16th consecutive month. In ISM’s methodology, readings above 50 signal slower supplier performance, often reflecting stronger demand but also ongoing logistics constraints.
For distributors, slower supplier deliveries can translate directly into longer lead times, higher safety stock requirements, and increased working capital.
Survey respondents pointed to geopolitical instability — particularly conflict involving Iran — as a major driver of rising costs and supply disruptions. Companies reported higher diesel and gasoline prices, shipping delays, and inventory buildups as they worked to hedge against potential supply interruptions.
“The predominant commentary this month was about impacts and adjustments due to the conflict with Iran and the expected flow through of higher oil prices,” Miller said.
Wholesale trade was among the industries reporting growth in March, alongside transportation and warehousing, construction, and utilities — all sectors closely tied to distribution demand.
At the same time, inventory levels continued to expand, with the Inventories Index at 54.8, as companies increased stockpiles to mitigate supply chain risk tied to geopolitical uncertainty.
Despite the moderation in activity, the ISM said the March PMI level remains consistent with broader economic expansion. Historically, a reading of 54 corresponds to an annualized real GDP increase of about 1.9%.
Do not miss any content from Distribution Strategy Group. Join our list.
Share this article:
