The U.S. services sector expands for an eighth straight month in February and the rate of expansion topped expectations, data from the Institute for Supply Management show.

The ISM index, which shows the directional change of economic activity, is up 0.7 percentage points to 53.5 from 52.8 in January. That compares with expectations for 52.7 for February.

All four subindexes that factor into the ISM services index expanded in February for first time since May 2022. These are business activity/production, supplier deliveries, new orders and employment. Despite the positive showing, ISM said purchasers are fretting about the likely impact of tariffs.

Another decent month of expansion is seen for services with the ISM index at 52.7 in February, nearly steady from 52.8 in January.

Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation: a reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.