ISM Services: Favorable News from Every Perspective

The services index published by the Institute for Supply Management rose 2.3 index points in February to 56.1, signaling solid expansion in the service sectors of the economy. February marked the 20th consecutive month with a reading above the 50 threshold (which separates expansion from contraction), and it was the firmest reading since mid-2022. The increase in the index was broadly based, as three of the four components contributed positively, and all were above the 50 threshold.

The supplier delivery index was the only component that did not boost the headline measure, and its monthly change was minuscule (off 0.3 index point to 53.9). The dip, and the relatively low reading on this measure, could be viewed in a positive light, as the new information suggests that supply-chain problems are not an issue at this time.

The new orders index made the largest contribution to the advance in the headline measure, jumping 5.5 points to 58.6, moving to the upper end of the range of the past few years. With order flows firm, business activity remained brisk, as this component rose 2.5 points to 59.9. Business activity recovered quickly from the pandemic and has been above 50 since June 2020. The latest reading was in the upper portion of the range in place since 2022. The employment index was a bit of a laggard, as it rose only 1.5 points, and its level of 51.8 was light relative to the other components. Still, the latest reading was encouraging, as it marked the third consecutive month above 50, representing a break from the sub-50 results that were common in 2024 and 2025.

The prices index, which is not a component of the headline index, fell 3.6 points to 63.0. The elevated level is a concern, but it is not a shocking result, as this measure runs high relative to the other indexes in this report. Observations above 70 have occurred several times in years past, and the index was above 80 for most months during the inflation burst of 2021-22. Although still elevated, the prices index seems to be easing, as February marked the third decline in the past four months, and the measure is now noticeably shy of the 69.5 reading in October of last year.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.