LIVE MARKETS-Two-fer Tuesday: Flash PMI, labor costs/productivity

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TWO-FER TUESDAY: FLASH PMI, LABOR COSTS/PRODUCTIVITY

A duet of underwhelming economic indicators failed to generate much excitement among investors on Tuesday.

U.S. business expansion has lost a bit of oomph this month, and this time it's the fault of the services sector, for once.

S&P Global's advance "Flash" March purchasing managers' indexes (PMI) showed the manufacturing side USMPMP=ECI unexpectedly gained momentum, rising 0.8 point to 52.4. Consensus called for a 0.3-point deceleration.

But the larger services sector USMPSP=ECI shed 0.6 point from February's final reading to land at 51.1.

In aggregate, the composite measure USPMCF=ECI weakened by half a point to 51.4, to an 11-month low.

Still, all three metrics remain comfortably north of 50, the PMI dividing line between contraction and expansion.

But beneath the headline, prices paid - an inflation predictor - notched the biggest monthly increase in 10 months, widely linked to a war-related spike in energy prices.

Slower growth and falling orders were "commonly blamed on subdued confidence among both consumer and business customers," says the accompanying press release.

"The flash PMI survey data for March signal an unwelcome combination of slower growth and rising inflation following the outbreak of war in the Middle East," writes Chris Williamson, chief business economist at S&P Global. "Companies are reporting a hit to demand from the additional uncertainty and cost-of-living impact generated by the conflict."

Falling confidence and rising prices could tangle the Fed in a web of stagflation, trapping the central bank between the two parts of its dual mandate: subdued price growth and full employment.

Speaking of employment, the Labor Department took a second swing at fourth-quarter labor costs USLCA=ECI and productivity USPROR=ECI growth data.

Labor cost growth was bumped significantly higher, to 4.4% from its initial take of 2.8% on a quarterly annualized basis, a much steeper increase than the 3.5% analysts expected.

On the other hand, productivity - which measures output against hours worked - was slashed to 1.8% from the previously stated 2.8%. Economists called for an even 2.0%.

Even so, calling the data "volatile," Matthew Martin, senior U.S. economist at Oxford Economics, says, "The depressed rate of hiring, particularly after accounting for the war in Iran, means (labor costs are) unlikely to accelerate in the near term."

"The surge in business dynamism, stronger investment in intellectual property and research and development, and the eventual gains related to AI will keep productivity growth strong over the coming years," Martin adds.

(Stephen Culp)

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