The ISM Services index rose sharply in February, climbing 2.3 points to 56.1. This marks the highest reading since mid-2022 and extends the expansion streak to 20 consecutive months. Growth also broadened across industries, with 14 reported expansions, up from 11 in January.
The supplier deliveries index remained in expansionary territory for a 15th straight month, edging down slightly to 53.9. Readings above 50 continue to signal slower deliveries, consistent with firmer demand conditions and ongoing capacity constraints in parts of the services economy.
New Orders rebounded forcefully in February, jumping 5.5 points to 58.6. This follows January’s pullback and suggests that demand momentum has recovered. Business activity also strengthened further, rising to 59.9, its highest level since late 2022.
New export orders staged a notable turnaround, surging back into expansionary territory to 57.2 after January’s sharp contraction. This rebound suggests that the earlier weakness tied to trade frictions and travel disruptions may have been temporary, though volatility remains elevated.
Price pressures moderated, but remain intense. The prices index fell 3.6 points to 63.0, its lowest level in nearly a year, but continues to signal widespread cost increases. Employment improved modestly, rising to 51.8, pointing to continued, albeit measured, job growth in the services sector.
Key Implications
February’s report points to a clear reacceleration in service sector demand, with new orders, business activity, and exports all strengthening meaningfully. Respondents highlighted firm underlying momentum, noting that “stronger consumer demands, interest rate stabilization, improved supply chain and stronger services activity” are driving new business, while others cited demand being pulled forward due to cost pressures from data center and infrastructure investment. The extent of strength in demand in this release likely weakens the case for imminent rate cuts from the Federal Reserve.
While price pressures eased modestly in February, they remain elevated and widespread, reinforcing concerns about sticky services inflation. One respondent noted that “costs remain high for technology, facilities, utilities, and contracted services” and that “labor expenses are also increasing due to competitive hiring” while another emphasized that supply chains have adapted but not normalized from a pricing perspective. Combined with slower supplier deliveries, these dynamics suggest inflation risks remain skewed to the upside, supporting a more cautious Federal Reserve stance on near term policy easing.
