Service ISM Shoots to 56.1 and Signals End of Weakness Economics in the USA

Traders, if the market was looking for a sign that the American economy overcame the 2025 danger zone, it came today with the force of a knockout. The report ISM of February Services not only was it good; it was a statistical blowout that defies the most optimistic predictions.

By Igor Pereira Financial Market Analyst

While manufacturing showed resilience earlier this week, the service sector — which represents most of U.S. GDP — has just printed its highest level since July 2022.

Reading the ISM of Services came in 56. 1, crushing the consensus of 53.5 and overcoming until the highest estimate of economists.

• Historical Jump: The index rose 2.3 points compared to January, marking the largest monthly increase since September 2024.

• Business Activity: The Production/Activity Index has skyrocketed to 59. 9, growing for the 20th consecutive month.

• New Requests: The demand is heated, with the index jumping to 58.6.

• Employment: Although still in contraction (48.8), there was a significant improvement in relation to the 48.3 expected, suggesting that "headcount management" is stabilizing.

What makes this report a "Goldilocks" scenario (not too hot, not too cold) is price behaviour.

• Prices Paid: Unlike the ISM of Manufacturing, where prices went up to 70.5 in the service sector they fell from 66.6 to 63.0, the lowest level in 11 months.

• Fuels: Gasoline fell for the 12th consecutive month, offering critical relief to the consumer.

• Top Commodities: On the other hand, items such as chips, computers, copper and manpower keep pushing costs.

The respondents' comments reveal an economy adapting to the new geopolitical reality:

• Mining: "The combination of tariff exposure and instability in the semiconductor market is increasing the risk of acquisition and compressing margins."

• Construction: "The construction of housing remains delayed due to accessibility problems and interest rates."

• Real Estate: "Unknown risks of future U.S. government pricing actions are curbing corporate investment."

• Retail: "Due to the shortage of RAM memory, we are seeing increased costs and deadlines."

The stock market reacted with euphoria, believing that Artificial Intelligence (IA) is driving non-inflationary growth. However, for us ExpertFX, the scenario requires tactical caution.

My Vision:

1. Dollar (DXY): This 56.1 data gives the Fed ammunition to keep the interest high longer, which sustains the dollar in the short term, even with the failures in the ACH system.

2. Gold (XAU/USD): The price is now in $5144, testing our critical area of institutional support in $5130. As long as the Gold remains above this "purple box" and minimum $5093-96, the high-end structure to seek new historical maxims remains intact, regardless of the temporary optimism of the scholarships.

3. Stagflation Risk: The rise in manufacturing prices (70.5) against the fall in services (63.0) creates a dangerous divergence. If production costs are leaked back to services, the 3.0% EIP will only be the floor of inflation.