The U.S. services sector shifted into high gear in February, hitting its fastest pace in three and a half years as businesses from restaurants to financial firms logged strong demand and fatter order books. The latest monthly snapshot from the Institute for Supply Management suggests services activity is doing some heavy lifting for overall growth this quarter, even as investors eye a geopolitical wildcard that could spoil the party.
ISM readings point to broad services strength
The ISM Services PMI rose to 56.1 in February, with new orders jumping to 58.6 and the employment index climbing back above 50, signals that activity was expanding across much of the service economy. The prices-paid measure dipped slightly but stayed elevated, a reminder that many firms are still wrestling with higher input costs. These figures are drawn from the latest release by the Institute for Supply Management.
Timing matters here. The survey wrapped up before U.S. and Israeli strikes on Iran, an escalation that has already pushed oil and gas prices higher and rattled financial markets, according to Reuters. That spike in energy costs carries real growth risks. Reuters also notes Goldman Sachs estimates that every 10 dollar-per-barrel increase in oil prices could shave roughly 0.1 percentage point off late-2026 GDP growth if that move sticks. For broader market reaction and detail on the oil-price jump, see the Financial Times.
What it means for growth and inflation
The ISM pop lines up with hopes that growth is reaccelerating after real GDP slowed to a 1.4% annualized pace in the fourth quarter, according to the Bureau of Economic Analysis. Even so, economists are quick to note that a lasting oil shock could squeeze households and show up uncomfortably in the inflation data. Wells Fargo analysts estimate a persistent 10% rise in oil prices would add about 0.3 percentage point to year-over-year headline inflation in the middle quarters of 2026, as highlighted in recent coverage by MarketWatch.
What to watch next
From here, the spotlight turns to the next round of labor-market reports and inflation releases, which will help show whether the February services strength has legs or was a one-month burst. Traders have already pared back some expectations for interest-rate cuts as the Middle East shock pushed investors toward safe-haven assets and sent volatility higher, the Financial Times reports. For businesses and consumers alike, the big swing factor now is how long the energy jolt lasts. That will go a long way toward deciding whether February’s upbeat numbers mark the start of a stronger run or just a brief hot streak.
