The American services sector roared ahead in February at its fastest pace in more than three years, blowing past every Wall Street forecast while inflationary pressures eased to their lowest level in nearly a year.
The Institute for Supply Management’s Services PMI surged to 56.1 in February, a 2.3-point jump from January’s 53.8 and the highest reading since July 2022. The figure topped every single projection in a Bloomberg survey of economists — not just the consensus, but all of them.
“The services sector is heating up,” said Steve Miller, Chair of the ISM Services Business Survey Committee, noting that Business Activity, New Orders, and New Export Orders all hit their highest levels since 2024.
A Broad-Based Boom
The expansion was striking in its breadth. For the first time since March 2021, all ten reported ISM indexes were simultaneously in expansion territory. Fourteen of eighteen service industries reported growth in February — three more than in January — while only Retail Trade, Arts and Entertainment, and Transportation and Warehousing contracted.
New Orders surged 5.5 points to 58.6 percent, a more than one-year high, with a third of service providers reporting higher bookings — the largest such share in three years. The Backlog of Orders Index jumped an unprecedented 11.9 points to 55.9 percent, its best reading since July 2022. Business Activity climbed to 59.9 percent, the second-highest reading since November 2022.
Export demand joined the party as well. The New Export Orders Index leapt 12.2 points to 57.2 percent, returning to solid expansion after a month in contraction.
The February Services PMI reading now stands 4.1 percentage points above its 12-month average of 52 percent — a wide margin that signals the expansion has genuine momentum rather than noise.
Inflation Cools as Economy Heats Up
Perhaps the most significant detail in the report is what *didn’t* happen: prices did not accelerate alongside the demand surge.
The ISM Services Prices Index fell 3.6 points to 63.0 percent in February — its lowest reading since March 2025 and 3.4 points below its 12-month average of 66.4 percent. That marks a meaningful cooling of inflationary pressure even as business activity, new orders, and employment all accelerated sharply.
Employment Strengthens
The Services Employment Index expanded for the third consecutive month, rising 1.5 points to 51.8 percent — its firmest reading in a year. The jobs picture got additional confirmation from ADP data released Wednesday showing US companies added 63,000 jobs in February, the most since July.
Strong services employment combined with cooling services prices points toward continued real wage gains for American workers — the exact dynamic the administration’s economic strategy was designed to produce.
Resilience Heading Into Uncertainty
The ISM survey captured conditions in February, prior to the US-Israeli strikes on Iran, giving a clean read on the underlying health of the economy before any potential energy price disruption. Economists noted the strength provides a meaningful buffer.
“The US economy is off to a decent start and its resilience should help it overcome turbulence from the Iran war, barring an extreme scenario for energy prices,” Sal Guatieri, senior economist at BMO Capital Markets, told Bloomberg.
ISM’s own historical model translates the February 56.1 percent reading into approximately 2.5 percentage points of annualized real GDP growth — not a soft-landing pace, but an expansion pace.
The services sector accounts for the overwhelming majority of US economic output and employment. Its acceleration presents a picture of an economy in broad-based growth — delivering strong demand, solid job creation, and easing price pressures simultaneously.
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