Staff Reports
Evidence is piling up that Donald Trump’s impending second term is already revving the economic engine. S&P Global reported a notable surge in the services sector, which experienced its sharpest uptick in new orders and output since spring 2022. Employment figures also took a turn for the better, marking the first increase in five months. It seems that business confidence is as buoyant as a kid on Christmas morning, with an 18-month high in optimism.
In December, the S&P Global U.S. Services PMI Business Activity Index climbed for the second month in a row, reaching a stellar 33-month high of 56.8—up from 56.1 in November. Though just a tad below the flashy preliminary reading, it still showcases an economy gaining traction in the wake of the November elections. Businesses have reported that customers are now more eager to dive into new projects, apparently relieved that the election fog has lifted.
Consumer Confidence Rises to 16-Month High Following Trump Election Victoryhttps://t.co/26QJl34hsb
— GOP (@GOP) November 26, 2024
The remarkable growth streak in the services sector has now reached eight months. Yet, the growth overseas has beared witness to a slower pace compared to November, which is intriguing, considering how American ingenuity is often recognized globally. Companies are feeling the strain from an avalanche of new orders, leading to an increase in backlogs—recorded as the third occurrence in four months. To tackle the rising demand, service providers ramped up hiring after four months of trudging through layoffs, though the increase in jobs remained modest.
On the inflation front, there’s a glimmer of hope as December marked the third consecutive month of easing price increases, a welcome change signaling an end to rampant inflation that has plagued consumers for far too long. However, inflation is still at a higher clip than pre-pandemic standards, largely thanks to shipping costs and nagging wage pressures that keep businesses on their toes.
A key player in this economic optimism is none other than the policies anticipated from Trump’s administration. The Chief Business Economist at S&P Global has pointed out that heightened expectations for the upcoming year are largely influenced by the prospect of a business-friendly environment, complete with favorable tax policies and regulation relaxations, along with the traditional use of tariffs. This focus on the services sector might just help counterbalance the sluggishness seen in manufacturing, leading to expectations of robust growth in the fourth quarter.
With the services sector showcasing such strength, the Federal Reserve finds itself in a bit of a conundrum. There have been murmurs of potential rate cuts aimed at stimulating growth, but the current economic momentum weighs heavily on those discussions. As the economy closes out 2024 on a promising note, any change in interest rate policy will be under the microscope as early 2025 gets underway. The expectation of Trump’s pro-business approach is unquestionably lifting spirits, but persistent inflation pressures can complicate that equation. With Congress needing to accelerate efforts in preserving and expanding the tax cuts initiated during Trump’s first term, all eyes will be watching closely as the new administration takes shape.
