Home » Why is the financial market applauding as the U.S. service industry PMI plummets and breaks the line of prosperity and decline? _Securities News_Stocks_Securities Star

Why is the financial market applauding as the U.S. service industry PMI plummets and breaks the line of prosperity and decline? _Securities News_Stocks_Securities Star

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(Original title: Why is the financial market applauding as the U.S. service industry PMI plummets and breaks the line of prosperity and decline?)

News from the Financial Associated Press on January 7 (Editor Zhao Hao)Since the recovery of US economic activities from the new crown epidemic, the US ISM services PMI fell below the line of expansion and contraction for the first time and entered a state of contraction.

On Friday (January 6), local time, the latest data released by the Institute for Supply Management (ISM) showed that the Purchasing Managers Index (PMI) for the U.S. service industry in December 2022 recorded 49.6, down 6.9 from 56.5 in November. points, and far below market expectations of 55.

It should be pointed out that this is also the first time since the index recorded 45.2 in May 2020, it has fallen below the 50 expansion line, which means that the service industry, which accounts for more than two-thirds of US economic activity, was in a state of shrinking at the end of last year.

The PMI is compiled through monthly surveys of purchasing managers, and it is a “barometer” to measure the development of the industry and reflect future economic trends. The index usually takes 50 as the critical point. If it is higher than 50, it means that a certain field is in a state of expansion; if it is lower than 50, it means that a certain field is in a state of shrinking.

The sub-item data also showed that the business activity index in December fell to 54.7 from 64.7 in November, a drop of up to 10 points, indicating that business activities have shown signs of a cliff-like cooling.

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The new orders index fell by 10.8 points to 45.2, also the lowest level since May 2020. If the reading during the outbreak of the new crown is not included, it will be the lowest value since 2009.

The employment index and deliveries index fell 1.7 points and 5.3 points to 49.8 and 48.5, respectively, both entering contraction territory, indicating a slowdown in hiring and deliveries by service sector firms.

The service sector price index fell to 67.6 from 70, the lowest in almost two years, but still above the long-term average; the inventory sentiment index surged 11.7 points to 55.9, the highest level since June 2020, indicating that service providers believe Inventories are currently too high relative to business activity.

One more reason to slow rate hikes

According to the analysis, this series of data shows that the US service industry is facing continuous demand contraction pressure. If this trend develops, the US economy is likely to enter a broad-based recession. The U.S. manufacturing PMI for December, released by the ISM on Wednesday, was 48.4, the fifth consecutive monthly decline.

In 2022, in order to fight against high prices, the Federal Reserve raised interest rates by 425 basis points throughout the year, and may continue to raise interest rates this year to slow down inflation. Some economists expect a recession in the second half of 2023 due to monetary tightening by the Federal Reserve.

However, the employment form report released within the day showed that the non-farm payrolls in the United States were stronger than expected in December last year, but there were signs of slowing down. At the same time, wage growth has declined, and support for inflation may be weakening.

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This suggests that high inflation in the United States may be losing steam as the Federal Reserve raises interest rates to 2007 highs, without affecting employment too much, and a “soft landing” for the economy is expected.

The service industry PMI report released by the ISM shows that the Fed is likely to slow down further to reduce the probability of entering a recession. CME Group’s FedWatch tool shows that the bank already has a three-in-four chance (75.2%) of raising rates by 25 basis points at its February meeting.

At its December meeting, the Fed had already slowed the pace of rate hikes to 50 basis points from 75 basis points each. A further slowdown would bring more positive sentiment to financial markets in the US and globally.

As of press time, the three major U.S. stock indexes collectively rose, with the Nasdaq up more than 2%.

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