President Donald Trump promised a Golden Age of low inflation and hot economic growth, but the first business survey since the Iran war broke out suggests he's getting the opposite.
The warnings came from the first business surveys printed since the war started on Feb. 28.
The S&P Global Flash U.S. Composite Purchasing Managers' Index (PMI) - a survey-based gauge of business activity across both the manufacturing and services sectors - fell to 51.4 in March.
While the broader headline reading still points toward an expansionary private sector activity, the details beneath the surface were more concerning.
Input costs posted their sharpest monthly increase in 10 months, signaling a renewed inflation pulse driven by higher energy prices. At the same time, U.S. private sector employment declined for the first time since February 2025.
This isn't just a story of slowing growth. It's a picture of an economy drifting toward stagflation - and a Federal Reserve with no easy response.
What The March PMI Shows - And Why It Matters
The survey, compiled between March 12 and 23, revealed a widening split across the economy:
- The Services PMI fell to 51.1, an 11-month low and below expectations, as higher energy costs and geopolitical uncertainty weighed on demand. Export orders declined at a faster pace.
- Manufacturing, by contrast, rose to 52.4, a two-month high. But the strength came from precautionary behavior: firms rushed to build inventories and secure inputs, not because demand improved, but because supply risks increased. The apparent resilience in manufacturing is largely driven by safety-stock accumulation.
- Purchasing activity saw its biggest increase since June 2025 - not because demand is strong, but because companies are hedging against future disruptions.
That kind of front-loading tends to pull activity forward - boosting current data while raising the risk of a demand air pocket in coming months.
Across both sectors, prices were the common pressure point.
Input costs rose at the fastest pace in 10 months, while selling prices recorded their steepest increase since August 2022. Supplier delivery times lengthened to the most since October 2022, pointing to renewed supply chain stress.
S&P Global's chief business economist Chris Williamson translated the signal clearly: "The PMI data are indicative of GDP rising at an annualized rate of just 1.0%... while price gauges point to inflation accelerating back toward 4%, hinting at a growing risk of stagflation."
The Market Read
Markets have already begun pricing a stagflationary regime - and this month's cross-asset moves make that shift clear.
Equities, the purest expression of growth optimism, have fallen, with the SPDR S&P 500 ETF Trust (NYSE: SPY) down 5%. At the same time, oil - tracked by the United States Oil Fund (NYSE: USO) - has surged 40%, underscoring a simultaneous hit to growth and a shock to prices.
The Fed's dilemma is now clear: cutting rates into a 4% inflation backdrop risks reigniting price pressures, while holding policy tight risks choking an economy growing at just 1%.
Polymarket traders assign a 31.2% probability to zero rate cuts in 2026, with the distribution heavily skewed toward just 0-1 cuts (58% combined) - a sharp reversal from expectations just weeks ago.
At the same time, inflation risks remain firmly elevated: markets see a 97.8% chance that inflation exceeds 3% in 2026, a 74% probability that it rises above 3.5%, and a near coin flip that it breaches 4%.
Recession risks have significantly risen in recent weeks. The probability of a U.S. recession by the end of 2026 stands at 35%, signaling a meaningful downside tail.
Prediction markets have already made their call.
The question is whether the Fed - and the broader economy - can absorb a war-driven stagflation scenario without the policy tool that markets have been pricing for the past 18 months: rate cuts.