Services Sector Hits 3½-Year High
U.S. services activity hit a more than 3½-year high in February with the ISM Services PMI registering 56.1. This marks the 20th consecutive month of growth for the sector, providing an encouraging sign for the broader economy despite ongoing geopolitical uncertainties. The robust services data contrasts with mixed signals from other economic indicators.
The strong performance in the services sector was fueled by a significant jump in several key sub-indexes. The New Orders Index surged to 58.6, a 5.5-point increase from January, while the Business Activity Index rose to 59.9. For the first time since March 2021, all 10 of the reported services indexes were in expansion territory simultaneously. This expansion in the services industry, which makes up about two-thirds of the U.S. economy, corresponds to an estimated 2.5% increase in real gross domestic product (GDP) on an annualized basis. The Employment Index also saw growth for the third consecutive month, reaching 51.8, its strongest level in a year. Despite the surge in activity, price pressures within the sector showed signs of easing. The Prices Index fell to 63.0, a 3.6-point decrease from January and its lowest reading since March 2025. However, the index has remained above 60 for 15 straight months, indicating that costs are still consistently rising for businesses. The robust services data stands in contrast to a more mixed picture in the manufacturing sector. The ISM Manufacturing PMI registered 52.4 in February, a slight dip from January's 52.6, signaling a much more modest pace of expansion. Manufacturers are contending with a sharp rise in the Prices Paid Index, which jumped to its highest level since June 2022, largely driven by tariffs on materials like steel and aluminum.
