US Services Sector Sees Job Growth and Boost in Orders, Beating February Expectations

Clear Facts

• The US Services PMI from S&P Global dropped to 51.0 in February, still above expectations and in expansion territory, but marked the weakest performance since April 2024.
• The ISM Services Index rose to 53.5, surpassing expectations and indicating growth in the services sector.
• Employment in the services sector reached its highest level since December 2021, despite mixed signals from other data sources.

In February, the US services sector displayed resilience as key surveys exceeded expectations, despite a mixed bag of data from the manufacturing sector. The S&P Global US Services PMI fell to 51.0, a drop from January’s 52.9, yet it remained above the anticipated 49.7, indicating continued expansion. This figure, though the lowest since April 2024, was a notable improvement from the initial flash print of 49.7, which had suggested a contraction.

On the other hand, the ISM Services Index defied predictions of a decline, rising from 52.8 to 53.5. This increase highlighted the sector’s growth, contrasting with the manufacturing data where PMI decreased but ISM increased.

Beneath the surface, February marked the third consecutive month where all four subindexes—Business Activity, New Orders, Employment, and Supplier Deliveries—were in expansion mode. This was a feat not seen since May 2022. Employment, in particular, surged to its highest level since December 2021, despite conflicting reports such as ADP’s claim of a collapse in services sector job growth.

“Slightly slower growth in the Business Activity Index was more than offset by growth in the other three subindexes,” noted the report. However, concerns linger regarding the impact of tariffs and federal spending cuts on business forecasts.

The S&P Global US Composite PMI Output Index also saw a decline, falling to 51.6 in February from 52.7 in January. This marked the second consecutive month of decline, with service sector growth softening to a 15-month low.

“The final PMI is an improvement on the earlier flash reading but still paints a worryingly weak picture of service sector business conditions compared to the buoyancy recorded late last year,” stated the report. The outlook for output growth has been revised downward as service providers express concern over slower demand growth and uncertainty from new government policies.

Adding to the concerns was a sharp rise in costs, which companies struggled to pass on to customers due to weak demand. This scenario, while potentially beneficial for inflation, poses challenges for profitability.

Despite the somber tone from S&P Global, the optimism from ISM provides a counterbalance, highlighting the complexity of the current economic landscape.

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