ISM Services Index for October: 52.4 (forecast: 50.8; prior: 50.0)
ISM Prices Paid Subindex: 70 (forecast: 68; prior: 69.4)
ISM New Orders Subindex: 56.2 (forecast: 51.0; prior: 50.4)
ISM Employment: 48.2 (forecast: 47.6; prior: 47.2)
The latest ISM Services PMI reading, hitting an eight-month high (up from 50.0 prior), delivers a clear signal that the U.S. service sector is accelerating, making the case for a Federal Reserve rate cut in December significantly weaker. Business Activity Subindex saw a massive surge to 54.3 (from 49.9), indicating a sharp expansion and renewed momentum in the sector. New Orders also jumped to 56.2 (from 50.4), hitting their highest level since October 2024. Strong new demand often leads activity higher, suggesting current momentum could persist. The primary inflation concern remains the Prices Paid index, which rose to 70.0 (from 69.4), marking a three-year high. While you noted prices "ticked down slightly," the data provided shows a slight increase to 70.0. A reading this high is highly inflationary and suggests that service providers continue to pass on elevated input costs to consumers, which directly clashes with the Fed's goal of bringing inflation down to target. The Employment index, while still contracting (below 50), saw a slight lift to 48.2 (from 47.2). This modest improvement in labor market metrics does little to ease the Fed's concerns about wage-driven inflation.
Overall, this report presents a picture of strong, accelerating economic growth paired with intense inflationary pressure within the dominant services sector. The surge in Business Activity and the three-year high in Prices Paid are particularly problematic. The robust nature of these results significantly weakens the argument for a December rate cut and supports the Fed maintaining its restrictive stance for longer to fully tame inflation. On the one hand, the report should be supporting for the US dollar, especially in the environment related with the Government Shutdown. On the other hand, lower expectations for the Fed cut should be negative for the stock market. However, the robust picture of the US economy shows that companies can still deliver great results, even in the face of ongoing uncertainty.
The US500 has been rebounding since early today and a strong economy should indicate that investors should not expect a slowdown in US corporate earnings in the fourth quarter. Source: xStation5
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