Latest / Markets with Megan: A Quick Financial Markets Update / Sifting Through ISM Services Report Signals | Episode 117 | 04.03.2024
Transcript
- 0:01Megan Horneman: Well, that was a big miss, and I'm talking about the ISM Services Index.
- 0:05Megan Horneman: Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors.
- 0:09Megan Horneman: We're coming to you on Wednesday, april 3rd and we're going to discuss in our regular segment of Markets with Megan the ISM Services Report that came out this morning.
- 0:18Megan Horneman: This is for the month of March and the ISM Service Report measures the service activity in our economy, and keep in mind that that is where the majority of the money that consumers spend is spent on services.
- 0:31Megan Horneman: There was an expectation this index would rise slightly, and this has been relatively elevated compared to its sister report, the manufacturing report, but instead this index came in much weaker than anticipated.
- 0:45Megan Horneman: It was the second consecutive month of a decline in this index.
- 0:49Megan Horneman: Let's dig into some of the details and why the market actually liked this report.
- 0:52Megan Horneman: First of all, the price is paid component.
- 0:55Megan Horneman: This is extremely important because this is where sticky inflation comes from in the service sector, and what we saw was that index actually dropped to the lowest level we've seen since March of 2020.
- 1:07Megan Horneman: It still is in that level of expansion, which is a level above 50, but it is the lowest level we've seen since March of 2020.
- 1:16Megan Horneman: We also saw big declines in the backlogs of orders, the delivery times and then inventory sentiment which when you have a drop in that, that may mean that there's some inventory rebuild we may see in the future months.
- 1:29Megan Horneman: The other thing in the report is that we did see employment component in this report rise slightly.
- 1:35Megan Horneman: It was a very modest rise but it still is in contraction territory so we're still having some weakness there on the service sector from an employment standpoint.
- 1:44Megan Horneman: Now why did the market react the way it does when there was a negative report?
- 1:48Megan Horneman: First of all, the prices pay component really drove the market.
- 1:52Megan Horneman: There's been a lot of concern about inflation pressures as of late and what we're seeing is that this prices pay component the market liked that.
- 1:58Megan Horneman: We will continue to assess the economic data that comes out that gives us indication on inflation.
- 2:04Megan Horneman: This is one month of a data report.
- 2:06Megan Horneman: There's been other things that have come out this week that have us a little bit concerned about inflation, particularly in the report that we discussed on Monday, which is the sister report to the service report, the manufacturing report.
- 2:17Megan Horneman: Those prices paid did jump.
- 2:19Megan Horneman: So the Fed's getting mixed signals here from economic data.
- 2:22Megan Horneman: They're just going to have to wait and see, and that still is our base case scenario.
- 2:25Megan Horneman: We're still not sure that the rest of the market expecting rate cuts as early as June.
- 2:31Megan Horneman: We think that they may have to wait to the second half of this year before they feel confident that inflation is on a trajectory where they wanted to get to their target rate of 2%.
- 2:39Megan Horneman: That's all we have today.
- 2:41Megan Horneman: If you have any questions or comments, please feel free to reach out to podcast at verdence dot com.
- 2:46Megan Horneman: We'll be back on Friday with a much-anticipated jobs report for the month of March as well.
- 2:50Megan Horneman: Thank you.