Latest Economic Data Sets Stage for Hawkish Fed Update
The Service PMI's employment index hit its highest level in some time, pushing a lower GDP forecast.
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Building on Wednesday morning’s January ADP Employment Report, which showed stronger job creation continued and wage pressure remains, ISM’s January Service PMI showed the same — despite the slip in its headline reading and new order data.
The Service PMI’s Employment sub-index perked up to 52.3 to its highest level in some time, while the Price sub-index clocked in at 60. That price reading was down compared to December’s white-hot 64.4 figure but even so, the January price print of 60.4 was considerably higher than we saw in the rest of 2024. This offers more data to suggest we’ll hear upcoming Fed speaker comments skew more hawkish than not.
Following the release of this January PMI report from ISM, the Atlanta Fed’s rolling GDP model for the current quarter was revised lower to 2.9% from 3.9%. Before we get too flummoxed by that drop, we’d share the 3.9% figure reflected just a few January data points and we would expect it to bounce around further until we get a decent swatch of January and February data. Should the economy continue to grow around 2% or better when all is said and done, that would be another factor keeping the Fed focused on inflation.
Reading between the lines of the January PMI reports and Wednesday's job creation figures from ADP, the probability that we see a stronger-than-expected January Employment Report on Friday is high. Current consensus forecasts have the economy adding 170,000 non-farm jobs during the first month of the year, down from 256,000 in December.
As we look forward, the potential for layoffs across the Federal workforce following the Thursday deadline for the Trump administration’s deferred resignation offer will muck with February and potentially jobs data. That will have us focus on the mix of job creation between the public and private sectors in those upcoming Employment Reports as well as the one on Friday for January.
The other known unknown is what’s next on the tariff and trade front between the U.S., China and the European Union, and what that means for inflation and consumer spending power. That means we will continue to track developments day by day and adjust our thinking as needed.
