US Services Sector Growth Slows in March 2024 Amid Rate Cut Speculations
- The March 2024 Services PMI fell to 51.4 percent, signaling expansion at a slower pace, with employment and supplier deliveries showing contraction.
- The decline in input costs fuels expectations for Federal Reserve interest rate cuts, with markets pricing in a 60% chance of a rate decrease by June.
US Services PMI Shows Growth Despite Contraction Signs in Employment and Supplier Deliveries
The US Services PMI (Purchasing Managers' Index) for March 2024 has been a focal point for economists and investors, as it provides insights into the non-manufacturing sector's performance. According to the latest data, the composite PMI reading was 51.4 percent, indicating growth for the 15th consecutive month. However, this represents a 1.2-percentage point decrease compared to February's figures.
Despite the overall growth, certain areas within the services sector showed signs of contraction. The Employment Index remained in contraction territory with a reading of 48.5 percent, although it was a slight improvement from the previous month. Additionally, the Supplier Deliveries Index experienced a significant decrease, dropping 3.5 percentage points to 45.4 percent, marking an all-time low.
The Prices Index, which measures input costs, fell to 53.4 percent, the lowest reading in four years. This decline has heightened uncertainties regarding the Federal Reserve's timeline for interest rate reductions, as the central bank is expected to start cutting rates this year, with the exact timing based on inflation behavior.
In contrast to the services sector, US manufacturing has been struggling to recover, with factory activity shrinking at an accelerated pace in February. This marks the 16th straight month where the manufacturing PMI remained below 50, signaling contraction. New orders and production at factories also saw declines, with new orders falling to 49.2 and production to 48.4. Despite these challenges, analysts remain optimistic, predicting a modest recovery in manufacturing should the Fed lower interest rates.
US Services Sector Growth Sustained Despite Challenges, Fed Rate Cut Odds Rise
The services sector's performance is critical as it accounts for a significant portion of the US economy. The PMI data is closely watched by market participants, including Federal Reserve Chair Jerome Powell, who has expressed confidence in the current state of the economy and policy, noting that future decisions will be guided by economic data. This sentiment is reflected in futures pricing, which indicates a 60% probability of a Fed rate cut in June.
In summary, the March 2024 Services PMI indicates continued growth in the US services sector, although with some areas of concern, particularly in employment and supplier deliveries. The manufacturing sector remains under pressure, but there is cautious optimism for a turnaround. The Federal Reserve's rate decisions, influenced by such economic indicators, are eagerly anticipated by the markets.