US stock futures are lower after yesterday's relief rally following Trump's announcement of a two week truce with Iran.
Now that truce does remain fragile and this morning we got a slew of economic data, including the Fed's preferred inflation gauge which stayed high and elevated in the month of February even before the Iran war began last month while investors will be. inflation data, especially ahead of the CPI figures yesterday, economists are also keeping track of March ISM figures.
The services report measures the health and direction of the US services sector, which has now expanded for 21 consecutive months.
Now March's reading came in at 54%, which was below February's reading and the median forecast. this morning is Jeff Roach, Chief Economist at LPL Financial.
Jeff, great to have you on.
Thank you so much for joining me.
A lot of economic data to sift through this morning.
So let's start out with how the markets have been reacting.
So we're looking at oil back up as well as stock futures down, but this does come on the heels of yesterday's relief rallies.
So where do we go from here?
Well, I think there are a couple of directions we could go.
We know that economic growth, it was a lot softer in the 4th quarter, so we got the 3rd estimate this morning on Q4 GDP.
Uh, downward revisions again, particularly in the consumer side as well as in the investment side.
What I think that does is it sets us up for a little bit of a weaker figure for Q1 of this year.
I expect growth to be around 2% still, but perhaps things to even soften go into Q2 and Q3.
In addition to the growth figures that we got this morning, we also got the inflation number, as you mentioned, the PC deflator, and what that's telling me is that.
It's going to be a while before we really see some headway in some of the services side of the economy.
So there's a component we call the super core that just means we strip out housing and we strip out the good side.
We're looking just at the services side of the economy, which is the most sticky.
That's been running above 3.2% on an annual basis for several months now.
So I think inflation's going to remain sticky again.
This was measured in February, early part of February before the war happened.
So we're going to have an uptick from here, I believe, in the following month, and we really won't see material improvement in inflation until as late as the end of Q3 or Q4 of this year.
And Jeff, all eyes are on tomorrow's CPI figures coming out at 8:30 a.m.
Eastern Time, but of course those figures are from last month as opposed to February.
So what are you looking for in those numbers?
Right, so with the CPI report, we will get a little better snapshot on what it was like for the consumer, especially when they were going to the pump, paying a lot more for gas.
Now granted, uh, remember, on, on average, we, we spend, you know, less than 5% or so on our annual household expenditures on gas, but it is a psychological.
Point of view and clearly that's something that's going to be weighing on the consumer.
We'll see that for March.
So I'm going to be looking at the gasoline prices.
Also interested in the services ex housing, so continue to look at some of those financial services, insurance, healthcare, as well as some of the categories of manufacturing.
Interesting to note, uh, it does seem like despite the tariff story.
There has been a fairly decent growth on corporate profits.
So yes, pressures on the consumer, but perhaps the corporate side of the of the economy will support growth in 2026.
And that does remind us that earnings season is kicking off next week, but I do want to get your take on what we can expect from this fragile ceasefire, and we have to keep in mind that Iran does still control the critical Strait of Hormuz.
So with a 0% of the world's oil still trapped in the strait, how long will the US economy, the global economy, actually suffer from the energy hangover depending on when that strait reopens?
Well, I think Europe and Asia are going to feel the heat in a much greater way than the US, as we've already seen in the way how markets have responded.
You know, I think once you start hitting the end of April, the beginning of May, I think that's when you're really going to see a little bit of those knock-on effects, the second order effects, as we say, uh, showing up in the global economy.
As it relates to the domestic economy, I think.
You know, interesting.
Separate from the fact that we're seeing crimped supply in energy, we, we still have this ongoing solid, strong demand for AI-related infrastructure.
We see that in the demand for technology, particularly computers, and support of that software industry.
So, I think, you know, the domestic economy is a little bit insulated, but the longer this thing does draw out, the more those second and knock-on effects will show up in other industries.
Well, Jeff, we will have to leave it there for today, but as always, thank you so much for joining us and thank you so much for sharing your insights.
Thank you.
