What the March Services PMI Reports Show
They both paint a differing picture when it comes to inflation.
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* March Services PMI reports from S&P Global and ISM show a modestly slower-growing Services sector, but differ wildly on inflation
* The market is embracing the slower inflation growth found in ISM’s report even though S&P Global’s shows that prices rose at the fastest pace in several months
* The clearer view is the composite picture of March Manufacturing and Services PMI reports, one that shows a growing economy but accelerating inflation pressures
* Despite the market rebounding this morning, we will stick with our plan ahead of Powell and other Fed heads
The March Services PMI reports from S&P Global and ISM have been published and they both show a somewhat slower-growing Service sector compared to February, but once again they paint a differing picture when it comes to inflation.
While ISM’s Prices sub-index dropped to 53.4 in March from 58.6 the month before and the lowest level in the last several months, S&P’s findings showed a sharp increase in both input and output costs “as companies passed higher input costs through to their customers.”
We see a mixed message in those data points but given the sharp upturn in the market following ISM’s findings, it’s clear the market is leaning toward one data point. After the weak start to April trading, it’s a positive figure but only a modest one when we compare it to the other March data received this week (Manufacturing PMIs and this morning’s March Employment Report from ADP).
We’ve said it before and we’ll say it again, because of its fight on inflation and looking to avoid head fakes, we doubt the Fed will lean on any one inflation metric, preferring instead to see multiple data moving toward its 2% target in unison.
That’s not what the overall picture is showing, but one that still skews toward one of sticky inflation and a vibrant economy. We see that reflected in S&P Global’s composite pricing findings, which in aggregate its March Manufacturing and Services PMI reports:
“Rates of both input cost and output price inflation quickened and were at six- and ten-month highs respectively. Sharper price rises were seen in both monitored sectors.”
This likely means we will hear today’s parade of Fed heads and Chair Powell reiterate the central bank will not rush to begin cutting rates and it will need to see even more “good data”. That reiteration could take some of this morning’s cheer out of the market, especially if a more hawkish undertone emerges in those comments. This morning, we heard from Atlanta Fed President Raphael Bostic that he sees a more cautious move to rate cuts with only one in the December quarter.
Because of the job strength shown in today’s ADP report as well as the aggregate comments from all of the March PMI reports received this week, the odds of Friday’s nonfarm payrolls number falling to 200,000 in March from 275,000 is low. We’ll likely see that forecasted figure get revised higher today and tomorrow, but if Friday’s results top that or move higher compared to February, that economic good news will probably be seen as bad news for rate cuts and how many we get this year.
That risk means sticking to our portfolio plan for now.
