The US February ISM Services Index reached a new high since mid-2022, with a rare surge in the backlog of orders index and rising manufacturing costs

U.S. service sector activity recorded its strongest performance since mid-2022 in February, with robust growth in new orders and simultaneous improvement in the job market, significantly enhancing overall economic momentum. On Wednesday, the Institute for Supply Management (ISM) released data showing that the service sector index rose to 56.1 in February, jumping 2.3 points from the previous month, exceeding all economists' expectations and reaching the highest level since mid-2022. The ADP employment report released on the same day indicated that U.S. businesses added 63,000 jobs in February, marking the largest increase since July of last year. The timing of this data release coincided with the eve of U.S. attacks on Iran, reflecting the broad strengthening of the largest economic sector in the face of external shocks. Notably, service sector employment recorded its healthiest growth in nearly a year, while inflationary pressures in the service sector outside of manufacturing showed signs of easing. New orders surge to over a year high, backlog of orders skyrockets The ISM service sector survey released strong demand signals. The new orders sub-index for February climbed to 58.6, reaching a new high in over a year, with export demand also showing significant improvement; the business activity sub-index recorded the fastest growth since May 2024. Particularly noteworthy is that the backlog of orders index jumped 11.9 points in a single month, marking an unprecedented monthly increase and reaching its highest level in nearly four years. This rare surge indicates that service providers are facing a deepening cumulative demand effect, with capacity pressures building up. Previously, ISM reported on Monday that manufacturing activity has remained in expansion for the second consecutive month. The simultaneous strengthening of both sectors provides strong evidence of the resilience of the overall U.S. economy. Service sector inflation cools, divergence from manufacturing trends The latest ISM survey reveals a divergence in price trends between the two major sectors of the U.S. economy. Manufacturing input costs are rising at the fastest pace since 2022, while price pressures in the service sector have noticeably eased—the service sector price paid sub-index fell to its lowest level in nearly a year in February, indicating a marginal cooling of inflation in the service sector. At the same time, the inventory sub-index recorded the fastest growth since October 2024, possibly reflecting an increased willingness among businesses to restock in the context of recovering demand. The divergence between cooling service sector inflation and rising manufacturing costs provides a more complex policy reference background for the Federal Reserve in assessing overall price trends