National PMIs (SPG)

In February, US business activity growth nearly stalled as the Flash US PMI Composite Output Index fell to 50.4, a 17-month low. The services sector contracted for the first time in 25 months, with the Services PMI dropping to 49.7, reflecting weakening demand. Conversely, manufacturing was steady, with output rising at an 11-month high (53.8), partly due to ongoing tariff-related front-running. Input cost pressures surged, particularly in manufacturing, due to tariffs and wage hikes.

Interpretation

The S&P Global US Composite PMI fell sharply to 50.4 in February 2025 from 52.7 in January, signaling near-stagnation in private sector activity and marking the slowest pace of business expansion since September 2023. The decline in services we flagged several months ago accelerated in February, meaning the index has gone from above fifty-eight to below fifty in a very short space, suggesting an alarming if unsurprising loss of momentum.

This downturn is likely due to front-loaded demand in late 2024, leading to a payback phase as consumers and businesses adjust their spending absent the new activity which had been expected/promised. Political uncertainties, particularly regarding federal spending cuts and potential tariff impacts, have exacerbated the slowdown, weakening new order growth and dampening business sentiment. The near-stagnation in new business inflows further indicates a marked decline in demand compared to the uptick seen in the final months of last year.

Conversely, manufacturing was steady, with the Manufacturing Output Index rising to an 11-month high of 53.8. This growth is partly attributed to front-running of potential tariff costs, suggesting that manufacturers continued to accelerate production to avoid anticipated price hikes. However, this temporary boost is certain to fade as underlying demand just isn’t there, evidenced by a decline in export orders and slowing new order growth. The Manufacturing PMI also rose slightly to 51.6, marking an 8-month high, but this is likely influenced by seasonal factors, similar to patterns observed in early 2023 and 2024 (see: chart below).

Business optimism about the year ahead fell to its lowest since December 2022, excluding the pre-election uncertainty of last September. It had been at a three-year high just a few months ago, demonstrating how quickly the situation has shifted.

Overall, the composite PMI's sharp drop to 50.4 indicates a significant slowdown in US business activity and momentum, exactly as we’ve been saying. The contrasting performances of the services and manufacturing sectors highlights economic vulnerabilities, with the former suffering from demand payback and the latter still experiencing the temporary high of tariff-driven gains