U.S. services activity accelerated to a 3½-year high in February despite Winter Storm Fern, with the ISM services index climbing to 56.1% as businesses adapted to tariffs and boosted sales. The reading signals the largest part of the economy is gaining momentum as companies report adjusting to trade policy challenges 1.
Key Takeaways
- ISM services index jumped to 56.1%, highest since August 2022
- Reading marks 20th consecutive month above expansion threshold
- Businesses report successful adaptation to tariff pressures
Market Reaction & Context
The Dow Jones Industrial Average and S&P 500 both rose in Wednesday trading following the data release 1. The services reading of 56.1% represents a significant acceleration from January’s 53.8%, surpassing expectations and marking the strongest performance for the sector since mid-2022 1.
Services companies, including banks, retailers and restaurants, have maintained expansion for nearly two years straight. Any reading above 50% indicates growth in business activity 1.
Tariff Adaptation Drives Growth
The February surge came as businesses reported successfully navigating the impact of higher U.S. tariffs implemented earlier this year 1. Sales and new orders both contributed to the stronger reading, suggesting companies have found ways to maintain customer demand despite cost pressures.
Manufacturing activity also showed resilience, with the ISM manufacturing index registering 52.4% in February, down slightly from January’s 52.6% but still indicating expansion for the second consecutive month 2. However, manufacturers faced significant price pressures, with the prices paid index jumping to 70.5% from 59.0% in January 2.
Executive Confidence Remains Strong
“The business climate remains solid overall,” a top executive at a real estate company told ISM 1.
The positive sentiment reflects broader confidence among service sector leaders despite ongoing challenges from weather disruptions and trade policy uncertainty. Winter Storm Fern, which impacted parts of the country in February, failed to derail the sector’s momentum.
Broader Economic Implications
The strong services reading provides encouraging signals for the overall U.S. economy, given the sector’s dominant role in economic activity. The sustained expansion suggests consumer spending patterns remain healthy and businesses are successfully adapting to policy changes.
Manufacturing data showed mixed signals, with production and new orders slowing from January levels but remaining in expansion territory. Employment in manufacturing continued to contract for the 29th straight month, though at the slowest pace since early 2025 3.
Looking Ahead
The combination of strong services growth and stable manufacturing expansion points to continued economic resilience. However, the sharp rise in input costs across both sectors could pressure profit margins if companies struggle to pass costs to consumers.
The data was compiled before the recent escalation of Middle East conflicts, which analysts say could impact energy costs and supply chains in coming months 2.
Not investment advice. For informational purposes only.
References
1Jeffry Bartash (March 4, 2026). “U.S. economy gained strength February despite winter storm Fern. ISM survey hits 3 1/3 year high.” MarketWatch. Retrieved March 4, 2026.
2Chantal Polsonetti (March 3, 2026). “February US ISM Index Remains Flat, Prices Increase Significantly”. ARC Advisory Group. Retrieved March 4, 2026.
3“U.S. ISM Manufacturing PMI Slips in February, Still Indicating Expansion”. Haver Analytics. Retrieved March 4, 2026.