Key Points

  • Data released by the Institute for Supply Management (ISM) on Wednesday showed that service sector activity expanded at its fastest pace since mid-2022 in February, with the new orders index rising 5.5 percentage points month-over-month and the business activity index up 2.5 percentage points.
  • The ISM said the supplier deliveries index rose for the 15th consecutive month, indicating sustained strength in demand. During the reporting period, 14 industries saw growth, covering areas such as real estate, mining, and information, with only 3 industries reporting contraction.The service sector has stabilized, after having been under pressure from the highest tariffs since the 1930s for nearly a year, noted Steve Miller, chair of the ISM Services Business Survey Committee.
  • Miller said that after the U.S. Supreme Court last month struck down most of the Trump administration's import tariffs, "there were quite a few comments about tariff uncertainty," but he also noted that "supply chain performance did not raise concerns, indicating that service sector companies have developed routine capabilities to cope with tariff policy changes."

Deeper Insights

"The service sector is heating up," Miller said, noting that the new orders, business activity, and new export orders indices all rose to their highest levels since 2024. Service sector employment growth also posted its strongest performance in a year.

Manufacturing also showed signs of strengthening in February, consistent with expectations of steady economic growth in the first quarter of 2026.

The Atlanta Federal Reserve predicted on Monday after the release of the ISM manufacturing report thatfirst-quarter GDP would grow at an annual rate of 3%。

ISM data released on Monday showed that factory activity grew for the second consecutive month in February, despite surging input prices and unclear business prospects due to changing tariff rates.

"Manufacturing activity improved overall compared with the previous reporting period, with 8 of the 12 Federal Reserve districts reporting growth of varying degrees and 2 reporting declines," the Fed's Wednesday-releasedBeige Book economic reportshowed.

The Beige Book said: "Manufacturing contacts in many districts reported increases in new orders, with some contacts citing demand boosts from data centers and related energy infrastructure."

The ISM manufacturing index edged down to 52.4 in February from 52.6, but remained above the 50 threshold indicating expansion. The prices paid index for manufacturers surged 11.5 points to 70.5, thehighest level since June 2022。

Although the service sector price index retreated, Miller said some survey respondents noted that gasoline prices rose for the first time since February 2025.

According to AAA data,the average price of regular gasoline has risen 11% over the past month, with most of the increase occurring during heightened tensions between Iran and the United States and Israel.

Despite positive signals in manufacturing, services, and overall economic growth, the Beige Book showed that several Federal Reserve district banks still noted weak spots in the economy last month.

The Beige Book said: "Many districts noted that economic uncertainty, increased consumer price sensitivity, and reduced spending by lower-income households weighed on sales."