The US service sector PMI unexpectedly contracted, hitting a two-year low, while manufacturing expansion exceeded expectations.

On Friday, February 21, according to data released by S&P Global, the initial value of the U.S. February service sector PMI unexpectedly fell into contraction, reaching a new low since January 2023; Meanwhile, the manufacturing sector, which has been weak for many periods in the past, continued to improve, expanding again and better than expected. Due to the drag from the service sector, the initial value of the Markit Composite PMI in February hit the lowest level since September 2023. The February Markit PMI data for the United States are as follows, with 50 as the dividing line between expansion and contraction: The February Markit Manufacturing PMI initial value was 51.6, reaching a new high since June 2024, recording expansion for the second consecutive month, with an expected value of 51.4 and a previous value of 51.2. The output sub-index initial value rose to 53.8, reaching a new high since March 2024, expanding for the second consecutive month; the employment sub-index initial value dropped to a new low since October 2024. The February Markit Services PMI initial value for the United States was 49.7, reaching a new low since January 2023, with an expected value of 53 and a previous value of 52.9. The employment sub-index initial value dropped to a new low since November 2024; the price sub-index initial value reached a new low since May 2020; new business inflows were almost stagnant, still expanding but at the smallest rate in ten months. The February Markit Composite PMI initial value for the United States was 50.4, the lowest level in 17 months, with an expected value of 53.2 and a previous value of 52.7. The new orders sub-index initial value dropped to 50.6, reaching a new low since April 2024, but still expanding for the tenth consecutive month; the employment sub-index initial value dropped to a new low since November 2024. This set of PMI data reversed the trend of the strong performance of the service industry and the decline of the manufacturing industry over the past two years. This is the first time since October 2022 that manufacturing has expanded but services have contracted. The service sector index, a key driver of the U.S. economy, showed a contraction for the first time in two years. In fact, until the end of last year, the U.S. service industry had been showing steady growth, but this index has weakened for two consecutive months. Analysts believe that the growth in manufacturing may be temporary, as some factories increased production in the short term to boost output before tariffs took effect. Under the drag from the service sector, the Markit Composite PMI for the United States hit a new low for more than a year in February, reflecting the impact of uncertainty from the Trump administration's policies on orders and business expectations. The data shows that inflation pressures are rising. Overall input costs accelerated in February, reaching their highest level in five months: Manufacturing input costs reached their highest level since October 2022. Purchasing managers generally believe that price increases driven by tariffs and supplier push-ups are the main reasons for the increase in costs. Service input costs rose to their highest level in four months, but output prices fell slightly. The gap between input prices and output prices puts pressure on business profits, the largest since June 2023. Overall employment indicators show a decrease in jobs this month, with a major decrease in service jobs by 5 percentage points, the biggest monthly drop since the U.S. economy shutdown in April 2020. After the U.S. election, the market expected the Trump administration to enact business-friendly policies, so expectations for future activities rose. However, this index dropped to its lowest level since September last year in February. The report pointed out that this deterioration mainly reflects growing uncertainties about the business environment, especially due to government spending cuts and uncertainties brought about by tariff policies. Respondents in the PMI survey also mentioned concerns about rising prices and broader geopolitical risks. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated in a statement: The optimism of U.S. businesses at the beginning of the year has dissipated. What we have instead is increasing uncertainty, stagnant business activity, and the bleak prospect of rising prices. Optimism for the next year has fallen from nearly a three-year high at the beginning of the year to the most pessimistic level since the epidemic. Companies report that they are generally worried about the impact of federal government policies, from spending cuts to tariffs to geopolitical developments. Uncertainties brought about by changes in the political landscape have hit sales, with suppliers raising prices due to tariffs, leading to price increases. Although the overall inflation pressure is still low, this reflects the squeeze on service industry profit margins, as companies seek to absorb rising costs in a weak demand environment to offer competitive prices. What is worrying is that manufacturing input prices related to tariffs have risen significantly, which may further increase inflation pressure in the coming months or further squeeze U.S. corporate profit margins. After the release of the U.S. PMI data, the yield on the U.S. 10-year Treasury notes fell sharply by about 3 basis points, dropping below 4.46% to a daily low, with an overall decline of more than 4 basis points intraday; the yield on the U.S. 2-year Treasury notes fell by nearly 3 basis points, dropping below 4.23% to a daily low, with an overall decline of about 4 basis points intraday. Subsequently, due to concerns about the economy, U.S. stocks fell sharply, with the Nasdaq falling more than 2% during the day. S&P Global's preliminary survey data for February is based on information collected from February 10 to February 20, covering about 85% of the full survey scope. The final data for the Manufacturing PMI will be released on March 3, and the final data for the Services and Composite indexes will be released on March 5. This article is reproduced from "Wall Street News," by author He Hao, GMTEight editor Li Cheng.