Latest / Markets with Megan: A Quick Financial Markets Update / Supply Chains Behave While Prices Misbehave | S3 E156 | 08-05-26
Transcript
- 0:00Megan Horneman: We're starting to get some of that data that the Fed's gonna have to see before they make their next interest rate decision in September.
- 0:06Megan Horneman: It is Wednesday, August the 5th, and this is Markets with Megan.
- 0:10Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell, share with your friends, family, colleagues, anybody who's interested in the economic data that they read about and what it means for the economy, the and their ass and the asset classes.
- 0:23Megan Horneman: Well, today we got the fur the reading on July ISM services, and we like to look at this indicator because the majority of money that American consumers spend is in the service sector.
- 0:34Megan Horneman: So the service sector is very important to remain strong in order to keep the economy going.
- 0:39Megan Horneman: We got the reading today, and it has been an expansion territory now for the past two years.
- 0:44Megan Horneman: It was slightly below expectations, but again, that this is where we like to dig into the details because that headline number doesn't tell everything.
- 0:52Megan Horneman: First of all, let's look at what caused that the increase or the decline in the index.
- 0:57Megan Horneman: It was mainly because of the backlog of orders and then also supplier deliveries.
- 1:03Megan Horneman: But this is not a bad thing.
- 1:04Megan Horneman: It means that some of those supply chains were easing.
- 1:08Megan Horneman: So when they're easing, that number detracts from the over of the headline.
- 1:12Megan Horneman: When they're increasing or getting more supply pressures, it actually adds to it.
- 1:16Megan Horneman: So it's not a bad thing that we got some some easing of that supply chain pressures.
- 1:21Megan Horneman: But what we are looking at that the Fed's going to pay attention to is that while overall activity was strong, we saw this kind of yin and yang here with the prices paid component component and the employment component.
- 1:33Megan Horneman: The prices paid component jumped up again above 70.
- 1:37Megan Horneman: It's now been above 70, which is a very high level in a historical standard for the fourth time in the past five months.
- 1:45Megan Horneman: But at the same time, we saw that the employment component actually did fall back into contraction territory.
- 1:52Megan Horneman: And it's actually been below 50 in 12 of the past 18 months.
- 1:57Megan Horneman: The indicator, some of this, the results coming from companies was that they're able to meet the current demand without actually adding to payrolls.
- 2:06Megan Horneman: They're using AI, implementing that to have instead of hiring new people.
- 2:10Megan Horneman: And then they are shifting to some lower cost locations.
- 2:13Megan Horneman: So this has been a negative for the labor market.
- 2:16Megan Horneman: And this is the two components the Fed needs to look at.
- 2:18Megan Horneman: Can they balance keeping the labor market strong with also either raising rates or trying to bring that inflation level down?
- 2:26Megan Horneman: And right now we're seeing those prices emerge again as the war has restarted here in July.
- 2:34Megan Horneman: The other thing that we're that um, as we mentioned, the the industries, there were 17 industries that actually reported higher prices.
- 2:41Megan Horneman: So none of them reported price declines.
- 2:44Megan Horneman: So this is broad-based inflation concern the Fed needs to take a look at.
- 2:47Megan Horneman: That's all we have today.
- 2:48Megan Horneman: We'll be back.
- 2:49Megan Horneman: It's a big week from a labor market perspective because we'll get the big jobs report on Friday.
- 2:53Megan Horneman: But we'll be back.
- 2:54Megan Horneman: And if you want a history of our podcast, you go to Marcuswickmegan.fm.
- 2:57Megan Horneman: Thank you.