Job market is slowing, but not 'collapsing': Economist

[Music] output in May growing at its fastest Pace in over two years giving investors reason to doubt some of that recent worry about growth the S&P Global us PMI composite rising to 54.4 this month now the move higher led by the services sector which saw business activity registering the fastest growth in a year reversing a Slowdown from prior mons and this was accompanied by expansion in the manufacturing sector as well here to dig into this data we want to bring Chris Williamson his S&P Global Market intelligence a chief business Economist Chris it's great to see so let's talk about this print that we were just getting and real quick I also want to take a look at the markets reaction because we do have the S&P right around the fly line but the story is really in the bond market and we have yields here pushing to the upside so Chris and curious from your perspective what does this print what does this report tell us just about the state of the US economy right now and maybe putting Tess some of those fears that that economic growth has been weakening well precisely that yeah we'd had some weakening growth momentum in this survey up to April two months of quite markedly slower growth uh and that's reversed into May we've got a much stronger growth picture here it's the fastest for just over two years uh and accelerating particularly sharply in the service sector this is obviously a very interest rate sensitive part of the economy and that acceleration and growth is clearly one that's going to worry uh the Central Bank in particular that uh you've got some some building demand pressures here in the economy again Chris I know that you called the April data just a bit of a wobble does today's data feel different to you I mean this is what an eight point standard deviation like this feels like a bigger move off of this PMI it's a big jump we've been surprised by the weakness in April there's possibly uh the timing of Easter often creates Havoc with the numbers but we're getting some other data coming in such as the the the housing data uh which were weak in April so it looks like there was a soft patch in April but it's difficult to disentangle how much Easter affected that but we do see some underlying factors here that's improved business confidence uh which is feeding through the better spending numbers uh and a big factor here has has been the market to be honest we've had the earning season that was better than many had expected an indication that companies are able to make good returns in this high for longer environment uh and that's led to this Resurgence in business sentiment and business spending that's fed through to this upturn in activity so if you like some of the fears that were mounting uh in in April uh about how higher interest rates might be affecting the corporate sector are being allayed Chris what does this tell us just about how strong or how much stronger GDP could potentially be here in the current quarter well we're running at levels that are consistent with around 3% annualized just over that 3% annualized GDP growth uh in in May so it looks like another strong quarter I think the Alanta fed nowcast is in similar sort of territory so yeah it it looks like it's going to be a good quarter again so defying many expectations of a Slowdown Chris is it enough do you think for the FED to hold off potentially even longer and then that also brings into into the question whether or not maybe another right hike should be on the table where do you stand just in terms of the thinking surrounding that narrative and that conversation well they those headline number in on their own are suggested that they're moving into more of a rate hike than a cut territory right but we do have some moderation of inflationary pressures coming through it's only modest but the service sector in particular the rates of inflation we're seeing in this survey in the service sector are among the lowest that we've seen in the last three years but that still leaves the indication of the survey of of a an above 2% inflation rate just above but it's still annoyingly above that Target suggest in again that this last mile uh to Target is proving really frustrating um a positive sign if you like here was that that we had two months of falling employment as as there's a lot of caution about the the environment going forward especially with the elections coming up and geopolitical uncertainties that's leading some pullback in hiring uh and that's helping to alleviate some of those wage pressures in the service sector uh so we need to watch how that progresses over the next couple of months um if that persists then we're still on course for some rate Cuts later in the year but but as it stands if we get this B pickup continuing or even gaining momentum then we've got to be looking at whether rate cuts are the right thing to be doing well Chris let's talk about the labor market here we know that Atlanta fed officials this week at their conference we're talking about how CEOs are telling them that they are pulling back on hiring at what point does that indicate a broader risk to this Market that could stall some of the growth that we're seeing keeping fears about the economy at Bay well yes so we've had two months now of of falling employment that's been led by the service sector it certainly looks like the service sector hiring trend is cooling quite markedly however it is being supplemented if you like by an upturn in manufacturing we know there's a lot of investment going on in manufacturing at the moment uh expanding capacity the chips and the IRA they're helping to expand that manufacturing base and and we're so we're see this more balanced economy coming through where growth is slowing perhaps in the service sector according to the jobs Market um but starting to pick up in manufacturing which leaves this overall I mean manufacturing is still a small part so it leaves this overall picture of a of of a slowing job market but not a collapsing one so I I think that leads to a suggestion that you're going to see some some weaker PID pressures come through which is going to help the the overall inflation picture but at the same time that weaker job market weaker pay growth is a negative for consumer spending so it's going to be interesting to see how this plays out but what I think the important takeaway here is that at the moment we still have this above Trend inflation rate that's going to be front of M and even if the labor market is slowing those wage pressures remain elevated by pre- pandemic stands to the extent that it's causing some nervousness certainly and that's why we continue to say we just need the Goldilocks perfect amount of heat and coldness in all environments here Chris thank you so much for joining us and sticking with us through those Tech issues we appreciated that was Chris Williamson he is S&P Global's Market intelligence Chief business economist

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Length: 6min 43sec (403 seconds)

Published: Thu May 23 2024