Latest / Markets with Megan: A Quick Financial Markets Update / Supply Chain Stress Is Back in Services | S3 E172 | 10-05-26
Transcript
- 0:00Megan Horneman: The service sector of the economy finished the third quarter on a little bit of a weaker note.
- 0:05Megan Horneman: It's Monday, October the 5th, and this is Markets with Megan.
- 0:08Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell that you see, share with your friends, family, colleagues, anybody who reads those economic data reports that come out and wants to know that impact that it has on the markets.
- 0:20Megan Horneman: Well, this morning we received the ISM Services Report.
- 0:25Megan Horneman: This is the same, um, the same company that releases the ISM manufacturing, but this is specifically on the service sector of the economy.
- 0:33Megan Horneman: And that's where Americans spend the most of their money.
- 0:35Megan Horneman: So this does tend to get a lot of attention and can be market moving, and we are seeing that a bit today in the fixed income market.
- 0:42Megan Horneman: So let's dig into the details.
- 0:44Megan Horneman: The composite index slipped a little bit in September, but it still does remain an expansion territory.
- 0:50Megan Horneman: When you look at the components of this that led to that weakness, um, it was overall business activity, the new orders, the new export orders saw a very steep drop, imports also declined, and then sentiment around inventories also dropped.
- 1:05Megan Horneman: So what are we seeing?
- 1:06Megan Horneman: What does this mean within here?
- 1:07Megan Horneman: Well, first of all, we're getting that impact from the inflationary and also the supply chain supply chain impacts from the war with Iran.
- 1:16Megan Horneman: So the prices paid component, this jumped to the highest level since July of 2022.
- 1:22Megan Horneman: When you look at the backlog of orders, they're the highest since 2022 as well.
- 1:28Megan Horneman: That's a supply chain disruption.
- 1:30Megan Horneman: And then when you look at delivery sentiment or delivery times, that actually also jumped to the highest since June.
- 1:37Megan Horneman: Again, supply chain issues.
- 1:39Megan Horneman: What some of the industries said was the tariffs and the fuel costs continue to impact.
- 1:44Megan Horneman: That's one of the most cited issues that we saw.
- 1:47Megan Horneman: And then some of the different industries, when you look at construction, for example, some of the comments that they made, they said that interest rates continue to drive buyers out of the market.
- 1:56Megan Horneman: Half of the buyers are walking through the door, can't even qualify for a purchase.
- 2:01Megan Horneman: When you look at whether it's agriculture, forestry, fishing, and hunting, they mentioned the high cost of diesel fuel.
- 2:07Megan Horneman: And we wrote about this in one of our weeklies.
- 2:09Megan Horneman: Diesel fuel is a big deal for the economy.
- 2:12Megan Horneman: That increase has increased the cost of freight dramatically.
- 2:15Megan Horneman: The high cost is hard on farmers due to the high use of diesel fuel at harvest, and the high cost of crude oil has driven nitrogen, which is used for agronomic use prices to near record highs.
- 2:25Megan Horneman: So, what we're seeing, the impact in the market today, is that yields are rising on this because this is, again, supply chain disruptions can be inflationary, and we're seeing that in this data.
- 2:35Megan Horneman: So, this is likely gonna not gonna change the Fed's mind for what they do at the October meeting, but it is increasing that probability that they'll have to raise again in December.
- 2:44Megan Horneman: That's all we have today.
- 2:46Megan Horneman: We'll be back with more economic data this week.
- 2:47Megan Horneman: And if you want a history of our podcast, you go to marketswithmegan.fm.
- 2:50Megan Horneman: Thank you.