Dive Brief:
- The service sector grew last month at the fastest pace since mid-2022, buoyed by a 5.5 percentage point surge in new orders and a 2.5 percentage point gain in business activity, the Institute for Supply Management said Wednesday.
- An index of supplier deliveries signaled higher demand for the 15th consecutive month, the ISM said. Fourteen industries grew — including real estate, mining and information — while only three reported contraction, the ISM said. Services have steadied after nearly a year coping with the highest tariffs since the 1930s, according to Steve Miller, chair of the ISM’s services business survey committee.
- “There were several comments on tariff uncertainty” following the Supreme Court decision last month revoking most Trump administration import taxes, he said. Yet “there was no alarm regarding supply chain performance, suggesting that services companies have developed capabilities to routinely address shifts in tariff policies,” Miller said in a statement.
Dive Insight:
“The services sector is heating up,” Miller said, noting that indexes for new orders, business activity and new export orders hit their highest levels since 2024. Employment in services grew at the most robust pace in a year.
Manufacturing also showed signs of gaining strength in February, aligning with forecasts of steady economic growth during the first quarter of 2026.
Gross domestic product will expand at a 3% annual rate during Q1, the Federal Reserve Bank of Atlanta forecast Monday following release of an ISM report on manufacturing.
Factory activity in February grew for the second straight month despite soaring input prices and a murky business outlook caused by shifts in tariff rates, the ISM said Monday.
“Manufacturing activity improved overall since the previous reporting period, with eight [out of 12 Fed] districts reporting varying degrees of growth and two reporting declines,” according to the central bank’s so-called Beige Book report on the economy released Wednesday.
“Manufacturing contacts in many districts reported increases in new orders, and several cited boosts in demand from data centers and, relatedly, energy infrastructure,” according to the Fed’s Beige Book.
The ISM’s manufacturing index dipped to 52.4 last month from 52.6 but remained above the threshold signalling expansion. A measure of prices paid by manufacturers surged 11.5 points to 70.5, the highest level since June 2022.
Although the price index eased for services companies, some survey respondents noted an increase in the price of gasoline for the first time since February 2025, Miller said.
The average price for a gallon of regular gasoline has shot up 11% during the past month, according to AAA, with much of the gain occurring as tensions mounted between Iran and both the U.S. and Israel.
Despite encouraging signs for manufacturing, services and economic growth, several of the Fed’s regional banks last month flagged weaknesses, according to the Beige Book.
“Many [Fed regional banks] noted that sales were dampened by economic uncertainty, increased price sensitivity, and lower-income consumers pulling back on spending,” according to the Beige Book.
