US Services Drop Sharply: 'Darkening Picture' Of High Prices, Uncertainty, Economist Says

February's flash S&P Global PMIs released Friday morning revealed a sharp, unexpected drop in services and raised concerns about the health of the private sector in the United States. 

Services PMI Falls Sharply

Services PMI: The S&P Global Flash U.S. Services PMI Business Activity Index fell to 49.7 in February 2025 from 52.9 in January, sharply below expectations of 53 points. February's data marks the first contraction in the services sector activity in over two years, according to data from Trading Economics.  

Firms reported worsening new order growth to nearly stagnant levels due to uncertainty surrounding the Trump administration's spending cuts and potential pro-inflationary policies. 

U.S. Services PMI is expected to be 52 points by the end of the first quarter, according to Trading Economics global macro models and analysts expectations.

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Manufacturing PMI Edges Higher

Manufacturing PMI: The U.S. Manufacturing PMI increased to 51.6 points in February, up from 51.2 points in January and above expectations of 51.5. 

February data shows a continuing recovery in the manufacturing sector and marks the highest reading since June 2024. Factory output grew for a second month in a row and at the fastest pace in nearly a year.  

U.S. Manufacturing PMI is expected to be 51 points by the end of the current quarter, according to Trading Economics global macro models and analysts expectations. 

Composite PMI Shows Slowest Growth Since 2023

Composite PMI: The Composite PMI Index, which combines services and manufacturing data, dropped sharply to 50.4 points in February, down from 52.7 points in January. It marks the slowest pace of private-sector expansion since September 2023, driven by February's drop in services output. 

New order growth dropped and employment slipped while cost inflation grew and selling prices marked their slowest increase since late 2024. 

"The upbeat mood seen among U.S. businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices," said Chris Williamson, chief business economist at S&P Global Market Intelligence.  

Markets React: All three major U.S. indices are red Friday with the SPDR S&P 500 ETF Trust SPY down 0.49% and the Invesco QQQ Trust QQQ, tracking the Nasdaq 100, down 0.37%. 

The Invesco DB USD Index Bullish Fund ETF UUP, which tracks the U.S. dollar index, is up 0.38% at $29.09 at the time of publication Friday. 

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