Friday’s hotly-anticipated read on the state of the US services sector was good, but it could’ve been worse.

That’s the best “good news is bad news” joke you’ll hear this month.

ISM services printed 55.1 for February, easily robust enough to validate any and all hawkish rates narratives, but not the sort of scorcher that might’ve triggered a fresh escalation ahead of next week’s crucial labor market data.

Consensus was looking for 54.5 from the headline. The range of estimates from the five-dozen economists who ventured a guess was 52.4 to 56.6. Although the activity index dropped to 56.3 from 60.4 in January, the new orders gauge, at 62.6, was the highest since November of 2021.

Earlier, the final read on S&P Global’s services PMI for the US was in line with the flash print. At 50.6, it’s back in expansion territory for the first time since June. As a reminder, the flash readings on S&P Global’s PMIs caused some consternation last month for what they seemed to convey about the necessity of more aggressive monetary tightening.

February’s ISM services headline was consistent with a 1.8% annualized pace of growth for the US economy as a whole. That’s not far enough below potential to curb inflation, and the four-point increase in the employment gauge suggested hiring in services accelerated last month.

The data came on the heels of an ISM manufacturing report that showed raw materials prices for US factories are rising again for the first time since September. Mercifully, the services price gauge fell, but at 65.6, it remains high.

“Upward pricing pressures have eased slightly but are still elevated,” one ISM panelist remarked. “Costs continue to escalate, eliminating any profit we had hoped for in the first and second quarters,” someone in construction said. (Don’t let that one go without reading it twice.)

An anecdote from the retail sector suggested efforts to normalize inventory levels are ongoing, and may be hampered by slowing demand in 2023. Remember: That too can be inflationary given a shortage of warehouse space.

Frankly, this is the same story over and over again, month in and month out. Any good news is everywhere and always tempered by the prospect of renewed inflation.

As usual, S&P Global’s Chris Williamson offered a concise summary of the situation. “Across both services and manufacturing, jobs growth has risen to a five-month high as business confidence about the year ahead has perked up [and] the gloom heading into the winter has been replaced with brighter prospects moving into the spring,” he said Friday, before adopting a cautious cadence in noting that “this improving picture has, however, added to firms’ pricing power.”

After dropping to the lowest in more than two years in January, the pace of inflation for goods and services jumped last month to the highest since October, according to the S&P Global release. As Williamson noted, “companies reported greater success in passing higher costs on to customers.”