042: Decoding the ISM Services Report 09-06-23

Join Megan Horneman, our Chief Investment Officer, as she translates complex market trends into digestible insights. Megan dives into the ISM Services Report, an essential economic indicator due to the service sector's significant contribution to the US economy. Uncovering a significant rise in new orders and employment, as well as businesses clearing backlogs, Megan paints a picture of a robust economic standpoint. 

However, it's not all smooth sailing. She also delves into the rising prices component of the report, spotlighting its impact on inflation, a persistent headache for the Fed. Megan anticipates a more hawkish stance from the Fed and explores the potential implications. This episode balances an optimistic economic outlook with a warning bell for inflation. Whether you're a seasoned investor or a curious newbie, this episode offers invaluable insights into the latest market trends. Got questions or comments? We're all ears at podcasts@verdence.com. 

Hello, I'm Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets with Megan. We're going to talk about the ISM Services Report that came out today. The Service Report is important because the majority of the money that Americans spend on is on the service sector. This report, we look at it in two ways. From an economic standpoint, it was very strong. We had new orders jump. Employment in the service sector jumped after a pretty weak reading last month. We also saw businesses clearing that backlog of orders. This is good as far as not looking for an inventory overhang, those backlogs of orders. They cleared them out so much that indicator's only been lower one other time since the Great Recession in 2007 to 2009.

From the inflation and the Fed standpoint, the Fed is not going to like this report. We saw the prices paid component of this jump pretty substantially. It's the second consecutive month that we've seen this rise. The Fed's going to look at that because they've consistently talked about sticky inflation. Service inflation has been something that is considered sticky and very difficult to keep under control. We don't think this changes anything that they do at the next meeting, which is September 20th. We do think that they're going to have to take a little bit more of a hawkish stance. We'll wait and see what happens from the consumer price index next week, but when the Fed looks at this they're going to see not only is the service sector re-energized, but we're also seeing that inflation issue a concern for them. That's all we have today. If you have any questions or comments, please feel free to reach out to podcasts at verdence. com. Thank you.