US Services Drop Sharply: 'Darkening Picture' Of High Prices, Uncertainty, Economist Says

The US services sector, a crucial driver of economic growth, has experienced a significant slowdown, as indicated by the sharp decline in the Services Purchasing Manager's Index (PMI) to 49.7 in February 2025. This contraction marks the first in over two years and raises concerns about the health of the private sector in the United States. The slowdown in services activity was driven by worsening new order growth, which nearly stagnated due to uncertainty surrounding the Trump administration's spending cuts and potential pro-inflationary policies (Source: S&P Global PMIs, February 2025).

The Composite PMI Index, which combines services and manufacturing data, also dropped sharply to 50.4 points in February, down from 52.7 points in January. This marks the slowest pace of private-sector expansion since September 2023, driven by February's drop in services output (Source: S&P Global Market Intelligence). The slowdown in services activity, combined with cost inflation growth, can lead to rising prices, which can erode consumer purchasing power and further dampen consumer spending, contributing to a slowdown in economic growth.

The manufacturing sector, however, has shown resilience, with the Manufacturing PMI increasing to 51.6 points in February, up from 51.2 points in January. This indicates a continuing recovery in the manufacturing sector, with factory output growing for a second month in a row and at the fastest pace in nearly a year (Source: Trading Economics). The contrast in performance between the manufacturing and services sectors suggests that the manufacturing sector is more resilient to uncertainty and policy changes, while the services sector appears more sensitive to uncertainty.

The slowdown in services activity, combined with the uncertainty surrounding the Trump administration's policies, has raised concerns about the potential implications for economic growth in the coming quarters. A prolonged slowdown in the services sector, combined with a weak manufacturing sector, could increase the risk of a recession in the US economy. This would have significant implications for economic growth and employment in the coming quarters.