The ISM Services PMI rose to 56.1% in February - its strongest reading in over two and a half years - as new orders and business activity accelerated well beyond expectations.
The headline figure climbed 2.3 percentage points from January's 53.8%, marking the 20th consecutive month in expansion territory and beating the consensus estimate of 53.5%.
New orders were the standout, jumping 5.5 percentage points to 58.6% - an uptick that points to services demand gaining traction beyond the usual suspects.
Business activity hit 59.9%, up 2.5 percentage points on the prior month and the second-highest print since November 2022.
All 10 reported indexes sat in expansion territory for the first time since March 2021, with eight trending positively over the past six months.
ISM Services Business Survey Committee chair Steve Miller noted the February reading corresponds to annualised real GDP growth of roughly 2.5%.
Prices ease, factory hires don't
The services Prices Index dipped to 63% from 66.6% in January - falling 3.4 percentage points below its 12-month average.
It remains above 60%, but the direction of travel will be noted at the Federal Reserve.
Manufacturing tells a different story.
The ISM Manufacturing Prices Index jumped to 70.5% from 59% - its highest since June 2022 - driven by rising steel and aluminium costs alongside tariff effects filtering through supply chains.
In short, services pricing pressure is easing while goods-side inflation is moving the other way.
Services employment expanded for a third straight month, rising 1.5 percentage points to 51.8%.
That follows a run of sub-50 readings through much of 2024 and early 2025, so the trend is heading in the right direction even if the pace remains measured.
Respondents flagged that tariff impacts have largely stabilised and are now baked into supply chain costs - suggesting services firms have adapted to the shifting trade landscape more readily than their manufacturing counterparts.
Services account for the bulk of U.S. economic output, and February's data shows underlying momentum building rather than stalling.
The key variable from here is whether manufacturing input costs continue climbing and start filtering into services margins, as that dynamic would complicate the Fed's rate path and test the soft-landing narrative markets have leaned on since 2024.
