US Services Sector Unexpectedly Expands In February Despite Slowing Job Growth

The U.S. services sector expanded in February 2025 with all four main subindexes expanding for the third consecutive month. However, concerns persist around the impact of tariffs and federal spending cuts. 

The Details: The ISM Services PMI unexpectedly increased to 53.5% in February 2025, up from 52.8% in January and beating forecasts of 52.6%, as tracked by Trading Economics. 

Key highlights from the February 2025 Services ISM Report On Business include:

• Business Activity Index slightly decreased to 54.4%
• New Orders Index rose to 52.2%
• Employment Index expanded to 53.9%
• Prices Index increased to 62.6%, marking the third consecutive reading above 60%
• Inventories Index returned to expansion at 50.6%
• Backlog of Orders Index entered expansion territory at 51.7%

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“Slightly slower growth in the Business Activity Index was more than offset by growth in the other three subindexes. Anxiety continues; however, over the potential impact of tariffs. Some respondents indicated that federal spending cuts are having negative impacts on their business forecasts,” ISM Chair Steve Miller said. 

Labor Market In the Services Sector

The labor market in the services sector dropped significantly in February, adding only 36,000 jobs compared to 190,000 jobs in January. 

The ADP National Employment Report released Wednesday showed the sector was led by jobs in leisure/hospitality, professional/business, and financial while job losses occurred in trade/transportation/utilities, education/health and information.

Market Reactions

All three major indices were green in early trading Wednesday as markets awaited further developments regarding trade policies with Canada and Mexico. 

The SPDR S&P 500 ETF Trust (NYSE:SPY), tracking the S&P 500, was up 0.38% at $579.05 and the Invesco QQQ Trust (NASDAQ:QQQ), tracking the Nasdaq 100 index, was up 0.33% at $497.19 at the time of publication.  

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• Markets Tank After Trump Confirms More Tariffs: Here’s What Wall Street Is Saying

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