The vast majority of U.S. businesses expanded at a slower pace, and private-sector firms hired less, adding to earlier warnings the economy is losing momentum.
The Institute for Supply Management said Wednesday its nonmanufacturing index fell to a seven-month low of 54.4 in March from 56 in February, indicating activity cooled off. Analysts expected it to remain steady. The report saw sharp decelerations in jobs, orders and exports.
ISM's factory gauge out Monday also showed slowing growth .
U.S. stock indexes lost significant ground following the ISM data and ADP's disappointing private payrolls report.
Higher payroll taxes and $85 billion in federal budget cuts are expected to send the economy into another spring slowdown this year. Renewed fears over Europe will weigh on the U.S. too.
Still, 15 of 18 industries tracked by ISM expanded. Most comments were upbeat yet qualified.
"It may be a struggle, but economic indicators and signs of business growth point to increased spending from our customers," a purchasing manager at a professional services firm told ISM.
Mining, health care and agriculture contracted.
Private-sector firms added 158,000 workers in March, a five-month low and a sharp retreat from February's upwardly revised gain of 237,000, ADP said. Analysts expected 205,000.
Hiring declined in most categories. Construction payrolls were flat after average gains of 27,600 over the prior five months.
The housing recovery had been fueling solid job creation. But last month's pause came as the Superstorm Sandy rebuilding surge ended, said Mark Zandi, chief economist at ADP report co-author Moody's Analytics.
Small and midsize firms also cut hiring. Those with 50-499 employees added 39,000 fewer jobs. As ObamaCare mandates loom over businesses with 50 or more workers, some economists have warned hiring could slow.
"Anticipation of health care reform may also be weighing on employment at companies with close to 50 employees," Zandi said in a statement. "The job market continues to improve, but in fits and starts.
Citing the soft ISM and ADP figures, High Frequency Economics cut its forecast for Friday's Labor Department payroll gain to 160,000 from its old target of 215,000. The consensus is for 193,000 vs. February's 236,000.
Friday's jobs report will signal how much longer the Federal Re serve will maintain its heavy stimulus. Top policymakers have indicated the recent hiring pace, about 200,000 a month, must continue for several months before they scale back bond buys.