Economic data released Tuesday revealed a complex picture of the U.S. economy, highlighting an ongoing expansion in the services sector but a sharper-than-expected decline in factory orders for January.
Tuesday’s Economic Bullets: Highlights
- The ISM Services PMI fell slightly to 52.6% in February, down from 53.4% in January and below the expected 54%. This marks the 14th consecutive month of industry expansion, albeit at a slower pace.
- The prices paid sub-index saw a notable reduction to 58.6% in February, down 5.4 percentage points from 64% in January, signaling easing inflationary pressures in the services sector.
- In contrast, S&P Global revised its services PMI to 52.3 in February from an initial estimate of 51.3, highlighting a better-than-expected expansion in services sector activity, marking the second-fastest growth rate since last July and extending the growth sequence to over a year.
- Meanwhile, orders to factories saw a significant decline of 3.6% month-on-month in January 2024, marking the largest decline since April 2020. This decline followed a revised decline of 0.3% in December and has exceeded market expectations of a 2.9% decline.
Economists’ reactions
Second Antonio Nieves, chairman of the ISM Services Business Survey Committee, “the slight decline in the growth rate in February is the result of faster supplier deliveries and the contraction in the employment index.” Most respondents have a generally positive view of business conditions, but continue to express concerns about inflation, employment and lingering geopolitical tensions.
Chris Williamson, chief business economist at S&P Global Market Intelligence, highlighted the substantial expansion of the services sector along with accelerating manufacturing production as indicators of sustained GDP growth. “The acceleration occurred despite a cooling of growth in financial services, linked to the recent retreat of rate cut expectations,” Williamson said.
The expert noted that consumer demand for goods and services increased in February, supported by the easing of the cost of living crisis and robust labor market conditions. “Consumers are once
back on the front lines of economic expansion,” Williamson said.
However, he warned that although average prices rose at one of the slowest paces in four years, the rate of inflation for both goods and services accelerated in February.
Market reactions
The latest data prompted a decline in US Treasury bond yields, with the benchmark 10-year yield falling to its lowest point in nearly a month at 4.12%, driven by growing anticipation of future rate cuts of interest to the Federal Reserve.
Expectations for a rate cut by June jumped to 72%, a significant increase from 65% the previous day, with traders factoring in more than a full percentage point of cuts by December 2024.
Bonds and gold outperformed stocks on Tuesday. THE iShares 20+ year Treasury bond ETF TLT recorded a 1.4% rally, while the SPDR S&P 500 ETF Trust Fund TO SPY and the Invesco QQQ Fund QQQ they decreased by 0.9% and 1.9% respectively.
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