The Trump effect propels business confidence to its highest level in 18 months

Optimism about Trump’s economic agenda

The evidence continues to accumulate: the election of Donald Trump for a second presidential term is already causing economic acceleration.

S&P Global said Monday that service providers have seen strongest growth in new orders and production since March 2022employment in the sector rose for the first time in five months and business confidence rose to its highest level in 18 months.

Seasonally adjusted data S&P Global US Services Business Activity Index PMI climbed for the second straight month in December, reaching a 33-month high of 56.8 after a reading of 56.1 in November. This figure is slightly lower than the previous “flash” figure, but nevertheless indicates an economy that is regaining strength after the November election results.

According to S&P Global, the companies note that customers were more willing to engage in new projects now that the election result had clarified things. The services sector’s growth streak extended to eight consecutive months, highlighting a sustained rebound in activity. New business from abroad notably continued to increase, although at a slower pace than in November.

The surge in new orders left many companies scrambling to keep up, leading to another build-up in order books in December – the third time in four months. In response to the growing workload, service providers have slightly increased their workforce, ending a four-month string of job cuts. While the the increase in hiring is a positive developmentthe report notes that job growth is still relatively modest.

Encouragingly, the rate of inflation eased for the third consecutive month in December, marking the lowest rate of cost increase since February. That said, input prices still increased at a faster rate than the pre-pandemic average. Companies cited higher shipping costs and continued wage pressures as key factors contributing to rising costs.

Excitement over tax cuts, deregulation and tariffs

Chris Williamson, chief business economist at S&P Global Market Intelligence, highlighted the role of political expectations in the engine of the growth of the services sector. “Expectations for faster growth in the new year are based on anticipation of more business-friendly policies from the new Trump administration, including favorable tax and regulatory environments as well as protectionism through tariffs customs officers,” he said.

This optimism, Williamson noted, has allowed the services sector to more than offset continued weakness in the manufacturing sector. As a result, the US economy appears poised for robust growth in the fourth quarter, following the 3.1% GDP expansion recorded in the third quarter.

As growth in the services sector remains strong, the Federal Reserve could find itself in a difficult position. Policymakers are considering a possible rate cut to spur further expansion, but the current pace of economic activity might make them think twice. Williamson warned that even if the economy ends 2024 on a good note, its vulnerability to any change in interest rate policy will be closely watched in early 2025, especially as financial services have played a critical role in sustaining recent growth, largely driven by expectations of falling borrowing costs.

The anticipation of a Pro-business Trump administration clearly reinforces the feeling. However, persistent inflationary pressures are now causing the Federal Reserve to rethink its recent enthusiasm for rate cuts, which could complicate the path forward. As businesses prepare for another year of expansion, all eyes will be on the ability of policymakers to strike. the right balance between promoting growth and controlling inflation. Much attention will undoubtedly be focused on how quickly Congress can act to preserve and extend the pro-growth tax cuts that Trump successfully implemented during his first administration.