Service Sector Spotlight: Key Indicators from ISM Services Report | Episode 108 | 03-05-2024

In this episode of Markets with Megan, Megan Horneman, Chief Investment Officer at Verdence Capital Advisors, looks into the recently released ISM Services Report for February. Despite a slight slip in the index, it has remained in expansion territory for 14 consecutive months. Megan breaks down key aspects, such as the decline in prices paid, indicating a positive trend for inflation, and the noteworthy improvement in business activity and new orders. However, she notes a mixed bag of results, highlighting weakened components like employment, new export orders, and new import orders. 

Megan emphasizes the Federal Reserve's scrutiny of this report and its relevance in the broader economic context. Looking ahead, she previews upcoming events, including Jerome Powell's congressional testimony and the eagerly anticipated employment report.  Stay tuned for more updates and analysis on the evolving economic landscape. For further questions or comments, reach out to podcast at Verdence dot com. 

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today. It's Tuesday, March 5th, with our regular segment of Markets with Megan, and we wanted to discuss the ISM Services Report that we received this morning for the month of February. This is the kind of sister report to the ISM Manufacturing. Manufacturing simply focuses on that side of our economy, but the service report focuses on the service side of the economy, and keep in mind that, even though consumers do make up about 70% of GDP, the majority of what we spend money on is in the service sector. So this report is closely scrutinized by the markets and especially looked at by the Federal Reserve. So let's jump into it. The index actually slipped just a little bit for the month of February, but it has been an expansion territory, which is a level above 50 for 14 consecutive months. When you look at the things that saw the biggest decline prices paid, so that's good from an inflation standpoint. The employment component so it does have some signs we're starting to maybe get a little bit of equilibrium from a labor perspective. New export orders and then new import orders led the weakness. There was some, I guess, confusion or mixed report. Mixed results in this, though, because business activity, as did new orders Both of these jumped. New orders now are at a six month high. So a mixed bag here from an economic standpoint, and the fact that we are still expanding in services shows that the consumer is still spending money. Prices paid, while it did come down a little bit that's good news they still. They've been an expansion territory now since March of 2020. So that's an inflation indicator.

The Fed will be keeping their eye out, for there's lots more information we got this week. Tomorrow we'll get the testimony to Congress from German Powell. We'll wind up the rest of this week with the employment report, which is always closely watched by the market and what we're seeing today that equities are taking a pretty big hit. I don't think we can pinpoint this exact report to that being the reason why it's primarily led by the technology sector, and we've often worn that sometimes corrections in areas that become very high, where multiples get very high or overextended, there's not really any rhyme or reason why you may see the contraction in those areas. Still, they're still sitting near record highs, but a pretty big pullback today. We'll keep watching this. We'll get some more information this week and we'll be back to report our findings. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.