Recent surveys have highlighted contrasting trends within the US services sector, particularly evidenced by data released by the Institute for Supply Management (ISM) and S&P Global. The ISM's report reveals an unexpected acceleration in activity, while S&P Global points towards a deceleration in growth, creating a complex narrative for investors and analysts alike. The ISM's purchasing managers' index (PMI) has impressively risen to 53.5 in February, up from January's figure of 52.8.
This surpasses the consensus expectation of a decline to 52.5, illustrating a generally expanding economy within the services sector. The business activity index, however, slipped slightly to 54.4 last month from 54.5 in January. Despite this dip, the acceleration in new orders and employment growth signals ongoing resilience in the marketplace. Nevertheless, concerns regarding the ramifications of President Donald Trump's trade tariff policies cast a shadow over these findings.
Steve Miller, the chair of the ISM's services business survey committee, pointed out ongoing anxiety about potential tariffs, noting that "some respondents indicated that federal spending cuts are having negative impacts on their business forecasts." This highlights an awareness of external pressures that may affect economic health moving forward. In line with this, Trump's recently imposed 25% tariffs on goods from Canada and Mexico began on Tuesday, coupled with a doubling of tariffs on imports from China.
In response, both Canada and China have announced countermeasures, escalating the tension and uncertainty surrounding trade relations. Stifel addressed these developments, mentioning that an increase in service activity offers "some comfort" against the growing fears regarding the overall health of the US economy.
Lindsey Piegza, Stifel's Chief Economist, noted, "While the report indicates businesses remain concerned regarding bad weather, a reduction in federal assistance, and tariffs, the near-term uncertainty regarding the implementation and scope of the latter appears to be weighing far more on business than a lingering concern of resulting sustained elevated prices." On a separate note, S&P Global's report revealed a slight contraction in its services PMI, which fell to 51 in February from 52.9 in the prior month, marking the slowest growth rate since November 2023.
The composite PMI output index trailed down to 51.6 from 52.7, reinforcing the notion of a mixed economic landscape. The data provider echoed concerns about government trade policies impacting demand growth both domestically and internationally. The report also highlighted a general uptick in prices for a broad spectrum of goods and services during February, with suppliers reported to have increased their charges partly as a result of applied tariffs.
This persistent inflation poses additional challenges for businesses as they navigate an uncertain economic environment..