US Services Sector Expands Amid Geopolitical Tensions

In February 2026, the U.S. services sector demonstrated significant expansion, with the Institute for Supply Management’s (ISM) services index rising 2.3 points to 56.1, marking the highest level since mid-2022. This increase indicates a broad-based growth across the sector, with 14 out of 18 tracked service industries reporting positive activity. The surge in new orders reached an over-one-year high of 58.6, reflecting strong demand and a healthy pipeline for future business. Additionally, employment within the services sector saw its most substantial growth in a year, with companies adding approximately 63,000 jobs, the highest monthly increase since July 2025.

Bloomberg

While the services sector showed resilience, inflationary pressures diverged significantly from the manufacturing sector. The ISM reported that prices paid for services and materials fell to an almost one-year low, contrasting with rising input costs in manufacturing. This cooling of inflation within services could influence Federal Reserve policy decisions, as the sector represents a substantial portion of the U.S. economy.

US Services Sector Shows Robust Resilience Amidst Global UncertaintyUS ISM Services Sector Heats Up in February, Takes PMI to More Than 3-Year High as Firms Meeting Demand by Controlling Tariff-Induced Cost RiseUS Services Activity Slows More than Thought: S&P GlobalBloombergReuters

The positive performance of the services sector unfolds against a backdrop of heightened geopolitical tensions, particularly following the U.S. and Israeli attacks on Iran and Tehran's subsequent retaliation. Economists warn that the ongoing conflict could lead to increased oil prices, which may dampen economic growth. Goldman Sachs estimates that a $10 per barrel rise in oil prices could reduce fourth-quarter GDP growth by approximately 0.1 percentage points. The uncertainty surrounding the conflict has raised concerns about potential volatility in global markets and its impact on consumer spending.

ReutersUS Services Sector Shows Robust Resilience Amidst Global UncertaintyUS ISM Services Sector Heats Up in February, Takes PMI to More Than 3-Year High as Firms Meeting Demand by Controlling Tariff-Induced Cost RiseBloombergUS Services Activity Slows More than Thought: S&P Global

Despite the optimistic data, some analysts express caution regarding underlying fragilities in the economy. The manufacturing sector continues to struggle with rising costs and declining export orders, exacerbated by ongoing tariff uncertainties. Additionally, the S&P Global US Services PMI reported a more tempered expansion, falling to 51.7 in February, indicating the softest growth in ten months. This divergence highlights distinct challenges faced by different sectors within the economy.

US Services Sector Shows Robust Resilience Amidst Global Uncertainty

Steve Miller, Chair of the ISM Services Business Survey Committee, noted that many firms have successfully absorbed higher costs associated with tariffs, indicating a resilient labor market. He emphasized that while the services sector is performing well, the overall economic landscape remains complex due to geopolitical uncertainties and tariff impacts.

US ISM Services Sector Heats Up in February, Takes PMI to More Than 3-Year High as Firms Meeting Demand by Controlling Tariff-Induced Cost Rise

• “The services sector is heating up, with the business activity, new orders, and new export orders indexes at their highest levels since 2024, and the backlog of orders index with its best reading since July 2022,” — Steve Miller, ISM Services Business Survey Committee Chair

US ISM Services Sector Heats Up in February, Takes PMI to More Than 3-Year High as Firms Meeting Demand by Controlling Tariff-Induced Cost Rise

• “The combination of tariff exposure and semiconductor market instability is increasing procurement risk, compressing margins, and requiring more aggressive supplier diversification and contractual protections to maintain cost competitiveness.” — Anonymous mining firm representative

US ISM Services Sector Heats Up in February, Takes PMI to More Than 3-Year High as Firms Meeting Demand by Controlling Tariff-Induced Cost Rise

• “ A retailer said, “Due to random-access memory shortages, we are seeing increased cost and lead times from key technology providers.” — Anonymous retailer representative

US ISM Services Sector Heats Up in February, Takes PMI to More Than 3-Year High as Firms Meeting Demand by Controlling Tariff-Induced Cost Rise

Looking ahead, economic projections suggest continued, albeit moderated, growth for the U.S. economy. Analysts will closely monitor the impact of geopolitical events and tariff policies on both the services and manufacturing sectors as they assess future economic trajectories.

US Services Sector Shows Robust Resilience Amidst Global Uncertainty