Economic Buzz: US services growth slows in February as PMI slips to 51.7 while cost pressures rise

S&P Global?s latest PMI survey indicates that growth in the US services sector slowed in February, although activity continued to expand overall. The headline US Services PMI Business Activity Index fell to 51.7 in February from 52.7 in January. While any reading above 50 signals growth, the latest figure points to only a modest increase in activity and marks the slowest pace of expansion in ten months. Despite the slowdown, the sector has now recorded growth for 37 consecutive months.

Business activity was partly affected by adverse weather conditions, which disrupted operations and sales. At the same time, new business continued to rise, extending the current period of expansion to 22 months, although the pace of growth cooled compared with January. Companies reported that new client wins and lower interest rates helped support demand. However, uncertainty surrounding tariffs and government policies limited overall demand growth, particularly from international clients. As a result, new export orders declined slightly, marking the third straight month of contraction.

With new work increasing faster than activity, service providers reported a continued build-up of backlogged work, which has now risen for twelve consecutive months. Employment increased slightly in February, marking a second consecutive month of job growth, though hiring remained limited. Many firms said the increase largely reflected filling existing vacancies, while broader hiring was restrained by cost-cutting efforts and muted demand.

Cost pressures remained strong during the month. Higher labour expenses and tariffs were cited as the main drivers of rising input costs. As operating expenses increased, companies raised their selling prices at a faster pace, passing some of these higher costs on to customers.

Looking ahead, service providers remained optimistic about business activity over the coming year, with sentiment improving slightly from January. Expectations were supported by hopes for stronger economic conditions, potential tax breaks, and new project launches, although uncertainty about government policies kept confidence below the long-term average.

Meanwhile, the S&P Global US Composite PMI?which combines manufacturing and services?declined to 51.9 in February from 53.0 in January, reflecting a broader slowdown in growth across both sectors.

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