A surge in services and continued strength in manufacturing pushed the PMI composite to a 27-month high at 55.9 in the February flash, surprising analysts and surpassing the Econoday consensus range by a wide margin. Services rebounded from recent softness where the index rose 2.6 points to 55.9, beating expectations of 53.5 and posting a 6-month high. Manufacturing, considered a leading indicator for the economy in general, rose 0.4 points to 55.9, a 40-month high.
New work received by service providers boosted service sector activity, registering the largest rise since March 2015. Business confidence in the outlook for the next 12 months picked up to the strongest level since May 2015, and anecdotal evidence suggested that sales volumes were driven by high confidence among both consumers and businesses.
A sharp rise in incoming new business also helped boost manufacturing, with new orders posting the steepest rise in three and a half years. Production growth was little changed, however.
Cost pressures intensified in February, especially in input prices, which showed the sharpest rise recorded since July 2013, but cost burdens and improving demand also took prices charged inflation to its highest level in nearly three and a half years.
The resounding strength in today's report points to rising inflationary pressures and gives the Fed support for further tightening.