| Consensus | Consensus Range | Actual | Previous | |
| Index | 53.6 | 52.0 to 54.2 | 56.1 | 53.8 |
Highlights
U.S. services sector activity expanded faster than expected in February, rising at a pace not seen in almost four years. Business activity as well as new orders (a gauge of demand) accelerated, while employment increased for the third month in a row. An encouraging sign that this key pillar of U.S. economic growth has staying power following the boost from the holiday period.
Prices declined in February, and although it has remained above 60 percent since March 2023 (expansion territory), February's reading is the lowest in almost a year.
The ISM Services PMI rose to the highest level since July 2022 (56.5), coming in at 56.1 in February, after January's reading of 53.8, and beating expectations for 53.6 in the Econoday survey of forecasters.
February's Services PMI features the third month in a row with all four sub-indexes being in expansion territory, similar to a period from December 2024 through February 2025, the report said. Also, all 10 reported indexes were in expansion territory for the first time since March 2021.
The services sector is heating up, with the Business Activity, New Orders, and New Export Orders indexes at their highest levels since 2024, and the Backlog of Orders Index with its best reading since July 2022, it added.
Market Consensus Before Announcement
Forecasters see growth stable with an index at 53.6 versus 53.8 in January.
Definition
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.
Description
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.
