The U.S. services sector continued to grow in February, with the Services Purchasing Managers’ Index (PMI) rising to 53.5%, up from 52.8% in January, according to the Institute for Supply Management (ISM). The data, released Wednesday, indicates that business activity, new orders, and employment all remained in expansion territory, reflecting steady demand despite economic uncertainties.

“February was the third consecutive month in which all four key subindexes—Business Activity, New Orders, Employment, and Supplier Deliveries—were in expansion territory, a milestone last seen in May 2022,” said Steve Miller, chair of ISM’s Services Business Survey Committee.

The Business Activity Index dipped slightly to 54.4% from 54.5% in January, but new orders rose to 52.2%, up 0.9 percentage points. The Employment Index showed continued labor market strength, climbing to 53.9%, marking five consecutive months of expansion. Supplier deliveries slowed further, with the index registering 53.4%, indicating ongoing supply chain delays.

Despite overall growth, businesses voiced concerns about the economic landscape. Several respondents cited uncertainty surrounding tariffs and federal spending cuts, with some reporting an increase in forward buying to offset potential cost hikes. The Prices Index, which tracks the cost of materials and services, climbed to 62.6%, reflecting continued inflationary pressures.

Fourteen out of 18 industries reported growth in February, including finance and insurance, wholesale trade, and construction. However, three industries—management of companies and support services, retail trade, and educational services — reported contraction.

The ISM® Report on Business is based on data collected from purchasing and supply executives nationwide and is considered a leading indicator of overall economic activity. A PMI above 50% generally indicates expansion, while a reading below 50% signals contraction.

The next Services ISM® Report on Business®, reflecting March data, will be released on April 3.