U.S. Services Sector Stalls While Manufacturing Shows Resilience in February

The S&P Global February PMI data revealed a mixed economic picture for the United States, with the services sector contracting while manufacturing showed modest growth.

The Services PMI dropped to 49.7, its lowest level in over two years, from 52.9 in January, signaling contraction for the first time since late 2022. Meanwhile, the Manufacturing PMI rose slightly to 51.6, up from 51.2, indicating continued expansion in factory activity.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, described the services sector’s performance as “worryingly weak.” He highlighted that optimism among businesses had plummeted due to political uncertainty, including federal spending cuts and tariffs.

This decline in confidence led to stagnating new orders and job cuts after months of hiring gains. The Composite PMI, which combines services and manufacturing data, fell to 50.4 in February from 52.7 in January.

This marks the slowest overall private-sector growth since late 2023. While manufacturing provided some support with its highest output growth in nearly a year, it was not enough to offset the drag from services.

U.S. Economic Struggles

Input cost inflation surged across both sectors, driven by rising wages and tariffs. However, firms struggled to pass these costs onto customers due to weak demand, potentially squeezing profit margins further.

For example, input costs in manufacturing rose sharply, with the Prices Index reaching 62.4%, up from 54.9% in January. In manufacturing, the New Orders Index slipped back into contraction territory at 48.6 after three months of growth, reflecting cautious business sentiment.

Employment also weakened, with the Employment Index dropping to 47.6 from 50.3 in January. Despite these challenges, the manufacturing sector’s resilience stands out after enduring a prolonged downturn through most of 2024.

February marked its second consecutive month of expansion following a 26-month contraction streak. The PMI data underscores an economy grappling with uneven recovery and policy-driven uncertainty.

Businesses face rising costs and softening demand while navigating geopolitical pressures and federal policy changes. Analysts suggest that sustained weakness in services could dampen overall economic momentum unless demand rebounds or policy clarity improves.

As of now, the U.S. economy remains on fragile footing, with February’s PMI figures painting a cautious outlook for the months ahead.