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Free AccessMNI INTERVIEW: ISM Chief Sees Bumpy Start To 2024 For Services
The vast U.S. services sector is set to sustain modest growth in coming months despite a surprisingly poor end to last year, with possible Federal Reserve rate cuts helping to stimulate demand later in the year, Institute for Supply Management chair Anthony Nieves told MNI Friday.
"I expect the PMI to still be probably in the low 50s next month, then the low to mid 50s, and then starting to pick up again towards the latter part of the second quarter," he said.
"This is a steady, incremental growth that we'll continue to see and and a little more growth in the latter part of 2024 than in the first half," adding that the prospect of Fed rate cuts could help stimulate demand. (See: MNI INTERVIEW: Fed Could Cut More Than SEP Anticipates)
Nieves sees a rebound in January and February with the index settling around the low 50s, after an unexpectedly sharp 2.1ppts drop in December to 50.6. He pointed to a similar decline a year ago in the December PMI that subsequently bounced to 55.2 in January: "I don't foresee it coming back as strong like it did last January because it was a big swing but we should increase."December's softness was driven by a 7.4ppt plunge in the employment index to 43.3, its weakest reading since mid-2020, and a 2.7ppt slip in the new orders index to 52.8.
SLOWING JOB GROWTH
In stark contrast to the Labor Department's employment report released earlier Friday, the ISM employment sub-index cratered but Nieves pointed to holiday lulls.
"This is not just seasonality. Typically, companies just don't hire as much in December. You get that dead space from Thanksgiving to Christmas and even now things won't ramp up until probably next week," he said. "We're measuring directional change, and what the respondents are indicating is that they didn't bring on as many jobs as the month before."
"We'll see a pickup and activity will happen more toward the latter part of this month," Nieves said. "We're going to be back in the low 50s if not in January then probably February."
But employment growth is slowing and is expected to remain tame through the first half of the year, he said. Companies "had difficulty backfilling positions because they couldn't find the applicable worker, or they're controlling the variable expense."
"Labor does look flat. It's only forecast to go up 0.8% year over year. That's not strong at all," Nieves said. "People are trying to do more with less and that continues to be the trend."
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.