This one sector is defying contracting economy and tariff fears

As Trump’s trade policies are sowing recession fears, one sector is quietly holding its ground: services.

According to the latest Institute for Supply Management (ISM) survey, the U.S. services sector has expanded for the eight straight month, defying expectations of a slowdown.

Economists polled by Reuters had predicted a slight dip in the ISM’s non-manufacturing PMI—from 52.8 in January to 52.6 in February. Instead, the index rose to 53.5, signaling stronger-than-expected growth.

“February was the third month in a row with all four subindexes that directly factor into the Services PMI—Business Activity, New Orders, Employment, and Supplier Deliveries—in expansion territory, wrote ISM Services Business Survey Committee Chair Steve Miller.

Miller noted that this has happened the first time since May 2022.

Eight straight months of growth

The sector’s resilience isn’t just a short-term trend. February marked the eighth consecutive month of expansion—and the 54th out of 57 months since the post-pandemic recovery began.

Only three of the 17 industries in the ISM survey reported negative growth in February:

One standout in the latest report is insurance services, which posted some of the sector’s strongest gains just weeks after facing major losses from California’s wildfires.

Allstate (ALL), for example, saw its stock drop 5% in a single day in early January as fires raged in Los Angeles. Now, the insurer is riding sector-wide momentum, building on gains fueled by last month’s dividend hike. The stock edged 0.25% higher on Wednesday.

Can services offset manufacturing weakness?

A strong services sector might help cushion the blow from a troubling ISM report on U.S. manufacturing, which continues to struggle.

“Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages, and manufacturing inventory impacts,” wrote ISM Chair Timothy Fiore in his latest report.

Still, even as the services sector extends its winning streak, Miller warned of looming risks.

“Anxiety continues over the potential impact of tariffs,” he noted. “Some respondents indicated that federal spending cuts are negatively affecting their business forecasts.”

Investors will be watching Friday’s employment report for a clearer picture of how the industry’s payrolls are holding up. Meanwhile, the Atlanta Fed is forecasting a 2.8% GDP contraction this quarter, a stark reminder that plenty of challenges remain.

For now, the services sector is proving to be a bright spot in an otherwise uncertain economy. The question is—how long can it last?