U.S. Services Sector Surprises with Growth in February 2025 Amid Job Growth Concerns

The U.S. services sector demonstrated unexpected growth in February 2025, continuing its expansion with all four main subindexes showing positive movement for the third month in a row. Despite this growth, worries linger regarding the effects of tariffs and potential cuts in federal spending.

The Details: The ISM Services PMI increased to 53.5% in February 2025, rising from 52.8% in January and exceeding analysts' predictions of 52.6%, according to Trading Economics.

Key highlights from the February 2025 Services ISM Report include:

• Business Activity Index slightly decreased to 54.4%
• New Orders Index rose to 52.2%
• Employment Index increased to 53.9%
• Prices Index surged to 62.6%, marking the third consecutive reading above the 60% threshold
• Inventories Index reported growth at 50.6%
• Backlog of Orders Index climbed into expansion at 51.7%

Implications of Tariffs:

While growth in three of the four subindexes provided a positive indication, a decline in the Business Activity Index raised some concerns. ISM Chair Steve Miller commented, “A slightly slower growth in the Business Activity Index was more than offset by growth in the other three subindexes. However, anxiety remains over possible impacts of tariffs. Some respondents noted that reductions in federal spending are adversely affecting their business outlooks.”

Labor Market in Focus

The labor market in the services sector faced a significant setback in February, contributing only 36,000 jobs, a notable drop from the addition of 190,000 jobs in January.

The ADP National Employment Report indicated that job creation was primarily driven by sectors such as leisure and hospitality, professional services, and finance, while there were job losses in trade, transportation, utilities, education, health, and information sectors.

Market Reactions and Outlook

In response to the report, all three major indices were in positive territory during early trading on Wednesday, as investors awaited updates on trade discussions involving Canada and Mexico.

The SPDR S&P 500 ETF Trust (SPY), which mirrors the S&P 500, experienced a 0.38% increase, trading at $579.05, while the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, rose by 0.33% to $497.19 at the time of the report.

Next Steps:

• Markets are cautious as developments regarding tariffs are expected to influence future trends.

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services, sector, growth