Link Securities | The US services sector purchasing managers’ index, the services PMI compiled by S&P Global, fell in its final February reading to 51.7 points (a 10-month low) from 52.3 points in January, falling below the 52.3 points in its preliminary reading, which was what FactSet consensus analysts had expected. Any reading above 50 points suggests expansion of activity relative to the previous month, and below that level, contraction.
According to the analysts who compile the indices, the February surveys reflect increasingly difficult trading conditions for companies so far this year. The slowdown in demand growth, both from domestic customers and export markets, has been exacerbated by adverse weather conditions in many states, leading to the smallest increase in service sector activity in ten months. Combined with a sharp slowdown in manufacturing output growth in February, the decline in service sector performance indicates that the economy is growing at an annualised rate of just under 1.5% so far in Q1 2026, although this is expected to improve slightly if we see a weather-related rebound in March. However, optimism among businesses in the sector about the coming year remains tempered by concerns about government policy, and is particularly low in the service sector, where the impact of tariffs is widely viewed as negative and where labour-intensive industries such as leisure and recreation continue to suffer from a combination of labour shortages, high prices and low consumer confidence.
A similar indicator, but compiled by the Institute for Supply Management (ISM), the ISM services index, rose in its February reading to 56.1 points from 53.8 points in January, easily surpassing the 53.9 points expected by FactSet consensus analysts. The index reading, which was the highest since August 2022, points to a high rate of expansion in activity in the US services sector. As in the previous case, any reading above 50 points suggests expansion of activity relative to the previous month and, below that level, contraction.
The business activity sub-index rose in February to 59.9 points from 57.4 points in January, while the new orders sub-index rose to 58.6 points from 53.1 points in the previous month. In turn, the employment sub-index improved, standing at 51.8 points compared to 50.3 points in January. The price sub-index eased slightly to 63.0 points from 66.6 points in the previous month, although it remained at high levels.
