Stocks are higher this morning as oil prices continue to grind higher in response to the Iranian situation. Bonds and MBS are down again.
The services economy improved in February according to the ISM Services report. The index rose 2.2 points and hit the highest level since June of 2022. There was lots of good news in the report: New orders surged, while business activity and employment rose. Prices fell to the lowest level in 12 months.
“February’s Services PMI® features the third month in a row with all four subindexes being in expansion territory, similar to a period from December 2024 through February 2025. Also, all 10 reported indexes were in expansion territory for the first time since March 2021. Further, eight of these indexes are on positive trends, with increases of as much as 11 percentage points over the last six months. The two indexes with negative trends over this time period are Prices, which has declined 6 percentage points, and Inventory Sentiment, which is down 0.4 percentage point. Although the Prices Index is still in expansion territory and in its longest streak above 60 percent since March 2023, February’s reading is its lowest in 11 months.
“The services sector is heating up, with the Business Activity, New Orders, and New Export Orders indexes at their highest levels since 2024, and the Backlog of Orders Index with its best reading since July 2022 (58.3 percent). The Supplier Deliveries Index is higher (and indicates slower deliveries) than its 12-month average, but the index has eased slightly since the previous month. Gasoline was noted by some respondents as a commodity up in price for the first time since February 2025, and copper was up in price for the third month in a row. Commentary on trade uncertainty increased, with respondents commenting that tariffs impacts have stabilized and are now embedded in supply chain costs. Although there were several comments on tariff uncertainty regarding the U.S. Supreme Court decision, there was no alarm regarding supply chain performance, suggesting that services companies have developed capabilities to routinely address shifts in tariff policies.”
On the subject of tariffs, note that a Federal Judge has ordered the US Government to begin refunding the tariffs it collected over the past year. This should be positive for big importers like Costco, WalMart, etc.
Layoff announcements declined 55% in February according to outplacement firm Challenger, Gray and Christmas. Layoff announcement fell on a YOY basis to 48,307. Hiring announcements remain muted however, which is consistent with the low hire / low fire environment the Fed has noted. Transportation and technology accounted for the lions share of the cuts.
“February’s dip is a nice reprieve from the elevated job cut plans to start the year. With U.S. involvement in a growing war in Iran, the end of Q1 may bring more layoff plans as companies tighten belts amid uncertainty and higher costs,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.
Separately, initial jobless claims fell to 213,000 last week.
Donald Trump officially nominated Kevin Warsh to succeed Jerome Powell as Fed Chairman. The nomination is not expected to be difficult, although Republican Thom Tillis is holding back support until the Department of Justice drops its investigation over Jerome Powell and the Fed Department renovations.
