Flash Purchasing Managers’ Index (PMI) data for March has revealed a mixed picture across three of the world’s major developed economies, with renewed strength in the services sector offsetting deeper contractions in manufacturing. While private sector output improved in the US, Eurozone and UK, confidence in the economic outlook continued to falter. This underscores an ongoing disconnect between current activity and future expectations.

US services power output gains amid rising caution

The US economy saw a notable rebound in business activity during March, driven entirely by the services sector. The S&P Global Flash US Composite PMI Output Index rose to a three-month high of 53.5, up from 51.6 in February, marking a return to stronger growth after a dip in momentum earlier in the year.

This improvement was underpinned by a marked acceleration in services activity, with the Services PMI Business Activity Index climbing to 54.3 from 51.0 in February. Firms cited improved demand conditions, stronger new business inflows, and a rebound in activity following adverse weather earlier in the year.

However, the picture was far less encouraging in manufacturing. The Flash US Manufacturing Output Index fell sharply to 48.8, down from 54.5 in February, registering its lowest reading in three months. The broader Manufacturing PMI also slipped below the neutral 50.0 threshold, dropping to 49.8. Respondents attributed the slowdown to softer demand and a fading boost from tariff-related front-loading seen earlier in the year.

Despite the headline uptick in output, business sentiment deteriorated. Expectations for the year ahead fell to their second-lowest level since October 2022, with firms citing growing concerns over customer demand and potential impacts from recent policy changes. This caution was also reflected in hiring trends, with employment growth remaining subdued.

Inflationary pressures re-emerged, particularly in the manufacturing sector, where input cost inflation - frequently linked to tariff policies - surged to a near two-year high. However, intense competition continued to limit the pass-through to output prices.

“A key concern over tariffs is the impact on inflation, with the March survey indicating a further sharp rise in costs as suppliers pass tariff-related price hikes on to US companies,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “Firms’ costs are now rising at the steepest rate for nearly two years, with factories increasingly passing these higher costs onto customers. Thankfully, from the Federal Reserve’s  perspective, services inflation remains relatively subdued, but this reflects the need to keep prices low amid weak demand, which will harm profits.”

Manufacturing turnaround leads to fragile Eurozone recovery

In the Eurozone, output growth continued for a third consecutive month, albeit at a marginal pace. The HCOB Flash Eurozone Composite PMI Output Index inched up to 50.4 in March from 50.2 in February, marking the fastest expansion since last August.

The region’s recovery was supported by a long-awaited return to growth in manufacturing, where output rose for the first time in two years. The Manufacturing Output Index climbed to 50.7, a 34-month high, while the Manufacturing PMI rose to 48.7, its best reading since January 2023. Firms reported rising production volumes, particularly in Germany, where a resurgence in factory activity contributed to the country’s fastest overall expansion in ten months.

Services output also remained in growth territory for the fourth straight month, although momentum eased slightly. The Services PMI Business Activity Index dipped to 50.4 from 50.6, signalling a slowdown in the rate of expansion.

New orders remained a weak spot for the Eurozone as a whole. Total new business declined for the tenth consecutive month, with both manufacturing and services firms recording reduced inflows. Export demand also softened, although the rate of decline was unchanged and among the slowest in the current sequence.

Inflationary pressures moderated, particularly in services. Input costs rose at the slowest pace since November, and output charge inflation eased to the weakest level seen so far this year. That said, factory gate prices increased for the first time in seven months, driven by a modest uptick in manufacturing input costs.

Signs of stabilisation extended to supply chains, where delivery times were shortened for the second consecutive month, something indicative of improved conditions after prolonged disruption.

Business confidence across the bloc remained subdued, falling for a second month and hitting its lowest point since November. Sentiment was mixed by country: French firms remained pessimistic, while German businesses reported a modest improvement. Elsewhere in the euro area, confidence remained stronger, albeit slightly lower than in February.

“Just in time with the beginning of spring we may see the first green shoots in manufacturing,” commented Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. “While we should not be carried away by a single data point, it is noteworthy that manufacturers expanded their output for the first time since March 2023. It’s also encouraging, that the index output has risen for three months straight. This is complemented by a much softer fall in new orders and employment. One could pour some cold water on this development arguing that it’s the temporary tariff-related import boom from the US which has driven the improvement in manufacturing. However, given the will of Europe, to invest heavily in defence and infrastructure – in Germany a corresponding historical fiscal package has been approved only last week – hope for a more sustained recovery seems well founded.”

UK services accelerate while manufacturing weakens further

UK private sector output rose at its fastest pace in six months during March, supported by renewed momentum in services. The S&P Global Flash UK Composite PMI Output Index increased to 52.0, up from 50.5 in February, extending the current sequence of growth to 17 months.

The improvement was driven by a robust rise in service sector activity. The Services PMI rose to 53.2, its highest reading since August 2024, as firms reported stronger domestic and overseas demand. Some companies noted a tentative turnaround in consumer-facing services alongside improved sales pipelines.

Manufacturing, however, continued to struggle. The Manufacturing Output Index slumped to 44.6, a 17-month low, while the broader Manufacturing PMI also fell to 44.6. Weighed down by soft global demand and concerns over prospective US tariffs, factory export sales declined at their fastest rate since August 2023. Total manufacturing output has now fallen for five consecutive months.

The divergence in performance was also evident in new business trends. While service firms saw new work rise for the first time in 2025, manufacturers reported a steep drop in sales volumes. Geopolitical uncertainty, delayed investment decisions, and tighter discretionary spending were all cited as headwinds.

Input cost inflation remained elevated. While there was a slight easing from January’s peak, prices continued to rise sharply, particularly in the services sector, where wage pressures dominated. Manufacturers also faced higher input costs, with metals and labour cited as key drivers.

Output prices followed a similar pattern. Services firms reported slower charge inflation, while factory gate prices increased at their fastest rate since April 2023. Some businesses noted discounting in response to weak demand, but others raised prices in anticipation of upcoming increases in National Insurance and the National Minimum Wage.

Business confidence remained fragile. While service providers reported a slight improvement in outlook, reaching a five-month high, sentiment in manufacturing fell to its lowest since November 2022. Those who remained optimistic pointed to technology investment, product development and demand from defence and infrastructure as sources of potential growth.

“The signal from the flash PMI is an economy eking out a modest expansion in March, consistent with quarterly GDP growth of just 0.1%, but with employment continuing to be cut thanks to concern over costs and the uncertain outlook,” stated S&P’s Williamson. “Confidence is still running close to January’s two-year low. The improvement is also being driven by only small pockets of growth, notably in financial services, with consumer-facing business and manufacturers continuing to struggle against headwinds both at home and abroad.

“These headwinds include the additional costs imposed on businesses in the Budget, low confidence among businesses and households, and sluggish demand at home and abroad, the latter linked to heightened geopolitical uncertainty resulting from US tariff policies. Worryingly, these headwinds are likely to grow in force as higher National Insurance contributions come into effect in April, coinciding with the anticipated review of US tariff policy on 2nd April, the latter having the potential to further subdue global economic growth and dampen UK trade.”

Momentum builds on unsteady foundations

Across all three regions, the March flash PMIs point to a private sector that is still expanding, but only just. Services are driving growth in the US, Eurozone and UK, while manufacturing continues to falter, reflecting weak global trade flows and mounting cost pressures.

The relative strength of services masks underlying uncertainty as confidence weakens and inflationary risks persist. Companies are navigating a complex environment: one where demand remains just strong enough to sustain modest growth but where caution about the future is increasingly weighing on investment, hiring and pricing power.

While March brought pockets of resilience, particularly in services and parts of Eurozone manufacturing, the message from businesses remains clear: output is holding up, for now, but expectations for the year ahead are on shaky ground.