Optimism About Trump’s Economic Agenda
The evidence keeps mounting that the election of Donald Trump to a second presidential term is already causing an economic acceleration.
S&P Global said on Monday that services providers saw the sharpest growth of new orders and output since March 2022, employment in the sector increased for the first time in five months, and business confidence reached an 18-month high.
The seasonally adjusted S&P Global U.S. Services PMI Business Activity Index climbed for the second consecutive month in December, reaching a 33-month high of 56.8 following a reading of 56.1 in November. This was slightly below the earlier “flash” reading but nonetheless indicative of an economy that is picking up steam following the November election results.
According to S&P Global, businesses note that customers were more willing to commit to new projects now that the election outcome had cleared the air. The services sector’s growth streak extended to eight consecutive months, underscoring a sustained rebound in activity. Notably, new business from abroad continued to rise, though at a slower pace compared to November.
The surge in new orders left many companies scrambling to keep up, resulting in another accumulation of backlogs in December—the third time in four months. In response to the rising workload, service providers modestly increased staffing levels, ending a four-month stretch of job cuts. While the hiring uptick is a positive development, the report notes that the increase in employment was still relatively modest.
Encouragingly, the pace of inflation eased for the third consecutive month in December, marking the weakest rate of cost increases since February. That said, input prices still rose at a pace above the pre-pandemic average. Companies cited higher shipping costs and ongoing wage pressures as key contributors to elevated costs.
Excitement Over Tax Cuts, Deregulation, and Tariffs
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, highlighted the role of policy expectations in driving the services sector surge. “Expectations of faster growth in the new year are based on the anticipation of more business-friendly policies from the incoming Trump administration, including favorable tax and regulatory environments alongside protectionism via tariffs,” he said.
This optimism, Williamson noted, has allowed the services sector to more than offset continued weakness in manufacturing. As a result, the U.S. economy appears poised for robust fourth-quarter growth, following the 3.1 percent GDP expansion recorded in the third quarter.
With growth in the services sector remaining strong, the Federal Reserve may find itself in a tricky position. Policymakers have been eyeing a potential rate cut to stimulate further expansion, but the current pace of economic activity could make them think twice. Williamson warned that while the economy is ending 2024 on a high note, its vulnerability to any shift in interest rate policy will be closely watched in early 2025—particularly as financial services have played a critical role in sustaining recent growth, largely on expectations of lower borrowing costs.
The anticipation of a pro-business Trump administration is clearly buoying sentiment. Persistent inflation pressures, however, is now causing the Federal Reserve to rethink recent enthusiasm for rate cuts, which could complicate the path ahead. As businesses gear up for another year of expansion, all eyes will be on whether policymakers can strike the right balance between fostering growth and keeping inflation in check. A lot of attention will no doubt fall on how quickly Congress can move to preserve and expand the pro-growth tax cuts Trump succeeded in putting in place in his first administration.
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