Rate-Hike Odds Rise As US Services Surveys Disappoint: Growth Strong But Inflation Stronger

Following the mixed (but strong) Manufacturing survey data for October (ISM up, S&P down), the Services sector survey data this morning more unequivocal.

• S&P Global US Services disappointed, falling from 58.8 to 56.1 (and worsening from the flash print of 57.9)
• ISM US Services also disappointed, falling from 54.9 to 54.5 (below 54.8 exp)

The US Composite PMI remained comfortably above the critical 50.0 no-change mark in October to signal another month of private sector output growth - and remains the strongest globally. However, amid weaker gains in both manufacturing production and service sector activity, the index fell to 55.9, from 58.4 in September – the lowest in three months...

“The October PMI surveys mark a strong start to the fourth quarter for the US economy, indicative of GDP rising at an annualised rate of over 4%," according to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence 

The star of the upturn remains the tech sector, but encouragingly solid supporting performances are also being seen in consumer-facing sectors and financial services

However, Williamson warns "the good news on growth is tainted by yet another worrying intensification of inflationary pressures and some disappointing forward-looking indicators from the survey."

Although current output growth remains strong, the pace of expansion has slowed from recent highs, linked to slower gains in order book inflows and reduced confidence about the economic outlook. 

“Business optimism fell sharply across the vast services sector in October, reflecting worries relating to affordability, interest rates, and the uncertain political environment."

Under the hood, New Orders tumbled, employment bounced back into expansion, but prices paid remain elevated...

Average prices charged for services meanwhile rose at one of the fastest rates seen over the past four years. Combined with a jump in goods prices tracked by the October manufacturing PMI survey, the overall signal is for inflation to rise further above the Fed’s target in the coming months, and that is reflected in rising rate-hike odds for December...

Will Warsh be hiking into a data-center-deadening recession?