The Services PMI (Purchasing Managers’ Index) is an essential indicator of the services sector’s health, covering finance, retail, healthcare, and hospitality. A PMI above 50 signals growth, while below 50 indicates a slowdown.
Two key organizations publish these reports:
- S&P Global: This Services PMI surveys a wide range of service sector companies in the U.S. and globally. It’s known for its extensive sample size and advanced methodology, providing early and detailed business condition insights.
- Institute for Supply Management (ISM): The ISM’s Non-Manufacturing PMI includes data from purchasing and supply executives across various industries, such as construction, utilities, and government administration. This survey, with its long history, focuses more on larger companies.
Both indices are closely monitored by economists and investors for valuable information about services sector performance and trends. A PMI above 50 indicates sector expansion, while below 50 signals contraction.
February S&P Global Services PMI
In February 2025, the US service sector continued to grow, but at a slower pace. The S&P Global US Services PMI® Business Activity Index recorded a reading of 51.0, indicating modest expansion. However, growth has slowed compared to the robust rates seen in late 2024.
Key points include:
- Modest increase in business activity and new orders.
- Confidence in the economic outlook is at its lowest since September.
- Employment fell for the first time in three months.
- Output growth slowed due to weaker demand.
- Cost inflation increased as suppliers raised prices, but competitive pressures kept service providers’ charges modest.
Overall, the service sector is still expanding, but at a reduced rate, with concerns over federal government policies affecting confidence.
Source: spglobal
February ISM Services PMI
Economic activity in the services sector grew for the eighth month in a row in February. The Services PMI was 53.5%, showing growth for the 54th time in 57 months since June 2020.
Key areas like business activity, new orders, employment, supplier deliveries, prices, and inventories all showed growth. Fourteen industries reported growth in February. However, there are still worries about the effects of tariffs and federal spending cuts on business forecasts.
Key points include:
- Services PMI: The February reading of 53.5% was 0.7 percentage points higher than January’s figure of 52.8%.
- Business Activity Index: Registered 54.4% in February, slightly down by 0.1 percentage point from January’s 54.5%. This marks the 57th consecutive month of expansion.
- New Orders Index: Recorded a reading of 52.2% in February, up by 0.9 percentage points from January’s 51.3%.
- Employment Index: Remained in expansion territory for the fifth consecutive month, with a reading of 53.9%, a 1.6 percentage point increase from January’s 52.3%.
- Supplier Deliveries Index: Registered 53.4%, up by 0.4 percentage points from January’s 53%. This marks the third consecutive month of expansion, indicating slower supplier delivery performance.
- Prices Index: Recorded 62.6% in February, a 2.2 percentage point increase from January’s 60.4%. This marks the third consecutive month above 60 percent.
- Inventories Index: Returned to expansion territory in February, registering 50.6%t, a 3.1 percentage point increase from January’s 47.5%.
- Inventory Sentiment Index: Expanded for the 22nd consecutive month, registering 54.7%, up by 1.2 percentage points from January’s 53.5%.
- Backlog of Orders Index: Registered 51.7% in February, a 6.9 percentage point increase from January’s 44.8%, entering expansion territory for the first time since July 2024.
February marked the third consecutive month with all four subindexes (Business Activity, New Orders, Employment, and Supplier Deliveries) in expansion territory, the first time this has happened since May 2022. While there is continued anxiety over the potential impact of tariffs, some respondents indicated that federal spending cuts are negatively impacting their business forecasts.
Source: ISM
Impacts of Report on Stock Market
The ISM Services Report and the S&P Global Services Report can have significant impacts on the stock market because they provide insights into the health of the services sector, which is a major component of the economy. These reports are considered leading indicators of economic health.
When the PMI is higher than expected, like the 53.5% reported, it usually means the economy is growing. This can make investors more confident, leading to higher stock prices as they expect better corporate earnings and economic growth.
