Latest / Markets with Megan: A Quick Financial Markets Update / Fed's Dilemma as Service Activity Slows | Episode 193 | 12-04-24
Transcript
- 0:00Megan Horneman: Well, the Federal Reserve got another piece of economic data today that shows a mixed bag for the US economy, and equity markets have cheered that along with bond prices.
- 0:09Megan Horneman: It is Wednesday, december the 4th, and this morning we received the ISM Services Index and this measures the activity in the service side of our economy, which is very important because that's where US consumers spend the majority of their money and it's also where we've seen inflation be a bit trickier for the Fed to be able to control.
- 0:28Megan Horneman: So let's dig into what we received in this data report today.
- 0:31Megan Horneman: So, from the broad composite index, the ISM services index, it showed that it continues to be in expansion territory, meaning I'm reading above 50.
- 0:41Megan Horneman: It's been in expansion territory for the past five consecutive months, but we did see the biggest drop that we've seen since June in the month of November and it went from a 56.0 to a 52.1.
- 0:55Megan Horneman: And to put that 52.1 in perspective, when Bloomberg surveys all the different analysts for their expectation for economic data, this was below even the lowest expectation for this reading today.
- 1:07Megan Horneman: Now, all of the components in this, the majority of them all saw a weakness.
- 1:12Megan Horneman: The biggest weakness was in the inventory change, but we also saw broad business activity decline.
- 1:17Megan Horneman: We saw export orders, employment, new orders all of these declined, which shows that the service side of the economy is slowing.
- 1:25Megan Horneman: Now why this is a mixed bag for the Federal Reserve is because it is showing a slowing economic environment, but it's also showing the prices paid component was one of three of the underlying indicators that actually increased, and that's that inflation component that the Fed has had trouble controlling on that service side of the economy.
- 1:46Megan Horneman: So we don't think this will make any changes to what the Fed will do in December.
- 1:51Megan Horneman: We still have a lot of data before they meet in December.
- 1:54Megan Horneman: We'll get the jobs report this week.
- 1:56Megan Horneman: We'll still have another CPI report for the Fed to digest.
- 1:59Megan Horneman: At this point we're just kind of waiting to see what the rest of the data shows.
- 2:03Megan Horneman: We think the Fed will still cut interest rates by 25 basis points in December, but I think the outlook for 2025 is much more unclear.
- 2:11Megan Horneman: This inflation continues to be very stubborn and the Fed's walking that very fine line of being able to control inflation while also bringing interest rates down while the economy is still producing positive growth.
- 2:26Megan Horneman: That's all we have today.
- 2:28Megan Horneman: We'll be back this week.
- 2:29Megan Horneman: As I mentioned, the much-awaited jobs report will be delivered on Friday, so we'll be back with some more economic data and what that means for the markets.
- 2:35Megan Horneman: Thank you, and if you like this podcast, please subscribe, hit the alarm bell, please share it with friends, family or colleagues, and if you'd like a longer history of our podcast, you can go to marketswithmegan dot fm.
- 2:47Megan Horneman: Thank you,