New Report Shows Economy Accelerated, but Failed to Meet Expectations
The Service sector continues to lead the economy but we will need to examine upcoming job and wage data closely.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
We have the first of two December Service PMI reports now in hand, and S&P’s showed that part of the economy accelerated in December but not as much as the market had expected.
Business confidence and new orders perked up, hitting the highest level since March 2022, driving backlog levels higher. That also led to the first month of job gains in the final four months of the year. S&P also found cost pressures moderated in the Service sector during December, but some survey respondents cited higher shipping costs and wage pressures.
Our takeaway is that the Service sector continued to lead the overall economy, and S&P findings bode well for similar ones from ISM tomorrow. Remember, between S&P and ISM data, folks tend to lean more toward ISM because those figures are used in GDP calculations.
Putting together the December Manufacturing PMI reports with Monday's findings from S&P, the strength in new orders tells us that the economy remains on firm footing, but we will need to examine job and wage data closely. Based on the three reports, the expectation for 160,000 jobs being added in December looks reasonable. However, we’ll concede what we find in this week’s December reports from ADP and Challenger should help refine those expectations. We’ll be especially interested in ADP’s wage figures for job stayers and job changers.
We can also surmise the improved sentiment for the economy contained in these reports can be traced back to expectations for the Trump administration to “boost demand conditions.” As we count down the days to Trump’s inauguration on January 20, we are going to the market more focused on potential policy out of the White House and its implications not just here at home but on the global stage.
That means we will have a three-legged stool to concentrate on in the coming days and weeks: White House policy, December quarter results and the economy/inflation/Fed. Should we see the economy continue to perform well, that will give the Fed more room to maneuver with future rate cuts. However, we do expect President Trump will find his way to discussing how much more vibrant the economy could be with lower interest rates and a weaker dollar. That could set off a verbal battle between Trump and Fed Chair Powell, but as of now, we’re inclined to think Powell will hold course until we have confirmed signs inflation is back on track toward the Fed’s 2% target.
