ISM® PMI® Reports Roundup: February Services
As was the case earlier this week, the U.S.-Israel strikes in Iran and the responses across the Middle East have dominated economic discussion so much that not even some of the hottest ISM® Services PMI® Report data in the last five years could change the focus.
That didn’t make the Services PMI® of 56.1 percent in February, the highest reading since July 2022, any less compelling — or any less enjoyable for investors — on Wednesday. However, it stayed on the periphery of economic news as companies and supply management practitioners ponder the impacts of a prolonged military operation.
Stocks get a boost after ISM's Feb Services Index coming in better than expected, including slowing growth in the price index which is a positive signal for inflation.
— Jason Brooks (@brookskcbsradio) March 4, 2026
The Middle East hostilities dominated media inquiries for Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, who noted that some industries in the sector will be impacted more than others.
“Foreign tourism is expected to go down, which would impact a lot of the hospitality and food services, as well as airlines and arts and entertainment,” Miller told a conference call of reporters on Wednesday. “In cybersecurity, you would expect to see increased business. Wholesale trade is already seeing a big boost. Those that support activity overseas, like utilities and management services companies, it depends on whether companies want to pump the brakes on investment projects like IT because of the uncertainty.”
That’s a sobering analysis for Arts, Entertainment and Recreation and Transportation & Warehousing, which were among just three services industries that reported contraction in February. Fourteen industries indicated expansion.
Another key factor, Miller said, will be oil prices, which rose sharply in the aftermath of Saturday’s Iran invasion but appeared to level off on Wednesday. Container shipping rates could increase as ocean vessels take longer routes to avoid Middle Eastern waters, but Miller added that (1) those spikes won’t be as dramatic as during the coronavirus pandemic and (2) will have more of an impact on the manufacturing sector than services.
“It depends on how well the U.S. can protect shipping vessels coming out of the Middle East and if a broader conflict breaks out that impacts oil production locations,” he said. “That doesn’t seem to be the case yet.”
Time will tell if the conflict will brunt the services momentum — the sector “is heating up,” Miller wrote in the report — which the data indicated was significant in February.
Demand stood out, with the four key indicators — the Business Activity (59.9 percent), New Orders (58.6 percent), Backlog of Orders (55.9 percent) and New Export Orders (57.2 percent) indexes — up by a combined 32.1 percentage points.
February ISM Services up to 56.1 vs. 53.5 est. & 53.8 prior ... highest since July 2022 with broad strength under surface (new orders higher, employment higher, and prices paid a bit lower but still expanding) pic.twitter.com/8nkTtQyigD
— Liz Ann Sonders (@LizAnnSonders) March 4, 2026
The Prices Index even offered good news, dropping 3.6 percentage points to 63 percent, its lowest reading in 11 months. That could be a temporary cooling, however, with supplier delivery performance expected to slow due to war in the Middle East.
“Iran will have the potential to continue dominating market action for the day, but don’t forget about the ADP employment report, ISM Services and (an earnings report) after the close,” Paul Hickey, co-founder of Bespoke Investment Group, told Barron’s.
The Employment Index (51.8 percent) stayed in expansion on the same day the ADP private payrolls report for February indicated 63,000 jobs — after the previous month’s revised figure of 11,000. The federal jobs report is slated to be released on Friday.
The Inventories Index indicated investment confidence by services companies, with an increase of 11.3 percentage points to 56.4 percent, ending a one-month stay in contraction. “(S)tarting to build up in preparation of the activity for the next three quarters,” a panelist wrote.
Finally, the U.S. Supreme Court striking down President Donald Trump’s International Emergency Economic Powers Act (IEEPA) tariffs in late February was expected to be the major topic of discussion on Wednesday — before last weekend.
Miller said the ruling does not settle the tariffs issue. While there is still uncertainty in the sector, companies have embedded tariffs into their supply chain costs and can pivot quickly.
“You build a capability and invest time and resources to be able to adjust as necessary,” he said. “Now, if there were an extreme measure of a boycott or shutting off trade with countries, that would be a different story. But the overall tariff impacts have stabilized.”
The ISM® PMI® Reports roundup:
Bloomberg: U.S. Services Activity Expands Most Since 2022 on Demand. “The survey highlighted a broad strengthening in the largest part of the economy prior to the U.S.-Israeli attacks on Iran. Healthier demand helped boost services employment, which saw the firmest growth in a year.”
CNBC: ISM Services Gauge Rises to 56.1% in February, Higher Than Expected. “With ISM, these are good numbers,” analyst Rick Santelli said. “On the (PMI®) number from February on Services: 56.1 percent, well above the 53.5 percent we were expecting. That’s the best level since July 2022. And (the Prices Index) is going down, which is a good sign. The evil number (from January, 66.6 percent) turns into 63 percent, the smallest prices paid, the inflationary component, since March 2025.”
MarketWatch: Economy Gained Strength in February Despite Winter Storm Fern; ISM Survey Hits 3½-Year High. “(B)usinesses adjusted to high tariffs and sales and new orders rose. … The huge services side of the economy is the best barometer of growth. The acceleration in orders bodes well for the rest of the year, but the Supreme Court decision on tariffs and now the conflict with Iran threaten to cast more uncertainty over the economy.”
Regarding US data, the ISM Services index for February was significantly higher than January’s and notably above the consensus forecast. Particularly encouraging was the rise in the forward-looking component to its highest level in more than a year.#economy #markets
— Mohamed A. El-Erian (@elerianm) March 4, 2026
Reuters: U.S. Services Sector Hits 3½-Year High, Risks Loom From Middle East War. “A reading above 50 percent indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. The PMI® reinforced economists' expectations for solid economic growth in the first quarter after gross domestic product slowed to a 1.4-percent annualized rate in the fourth quarter.”
The Wall Street Journal: U.S. Services-Sector Activity Continued to Rise in February. “Gasoline was noted by some respondents as a commodity up in price for the first time since February 2025, and copper was up in price for the third month in a row, the survey said. Commentary on trade uncertainty increased, with respondents commenting that tariffs effects have stabilized and are now embedded in supply-chain costs.”
In case you missed Monday’s ISM® PMI® Reports Roundup on the release of the February ISM® Manufacturing PMI® Report, you can read it here. For the most up-to-date content on the reports under the ISM® PMI® Reports umbrella, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/Juanmonio)