[True Insight Hong Kong Stock Experts] Inflation Problem Outweighs Employment, Fed Rate Cut Probability Drops

According to the latest data released by the Institute for Supply Management (ISM), the U.S. services PMI for March was 54%, down 2.1 percentage points from 56.1% in February. However, it has remained in expansion territory for the 21st consecutive month, with the average over the past 12 months at 52.3%, indicating continued resilience in the overall services sector.

Looking at the sub-indices, the Business Activity Index fell to 53.9%, the lowest level since September 2025, suggesting a weakening growth momentum. Nevertheless, the New Orders Index rose to 60.6%, hitting a new high since February 2023, indicating robust demand and providing subsequent support for the economy.

Notably, the employment indicator showed signs of weakening. The Employment Index for March dropped to 45.2%, a sharp decline of 6.6 percentage points from the previous month, marking the first contraction in four months and the lowest level since the end of 2023. Meanwhile, price pressures intensified significantly. The Prices Index surged to 70.7%, a substantial increase of 7.7 percentage points from the previous month, reaching the highest level since October 2022 and remaining in an upward trend for the 106th consecutive month. The report noted that rising oil and fuel costs were among the primary factors driving the price increases.

On the supply chain front, the Supplier Deliveries Index rose to 56.2%, expanding for the 16th consecutive month, which implies a slowdown in delivery speeds. ISM pointed out that this is related to transportation disruptions in the Middle East and weather factors, further increasing operational pressures on businesses.

Regarding inventories, businesses increased stockpiling in response to potential supply shocks. The Inventories Index stood at 54.8%, expanding for the second consecutive month. Some companies explicitly stated that they are hoarding oil-related products to guard against supply risks arising from potential disruptions in the Strait of Hormuz.

Industry distribution shows that 13 service industries reported growth in March, including Wholesale Trade; Finance & Insurance; Accommodation & Food Services; Transportation & Warehousing; and Information Services. Conversely, Retail Trade; Agriculture, Forestry, Fishing & Hunting; and Public Administration contracted.

Meanwhile, the employment report for March released by the U.S. Department of Labor last week showed that since Donald Trump began his second term in January last year, U.S. monthly nonfarm payroll growth has recorded the largest increase; the unemployment rate fell to 4.3%, primarily due to a large number of workers exiting the labor force.

Cleveland Federal Reserve Bank President Beth Hammack stated that the unemployment rate is near what she considers full employment. At the same time, although the stock market has declined since the outbreak of the Middle East war, from a financial stability perspective, the economy is in a good state.

In contrast, Chicago Fed President Austan Goolsbee believes the labor market is characterized by low hiring and low firing, which, in his view, is largely due to persistent uncertainty. As for the financial system, he expressed satisfaction with the payment system but anxiety about asset prices. He believes there are quite a few signs of a bubble, and it remains unclear whether this is driven by productivity or a bubble waiting to burst.

Both indicated that inflation poses a greater challenge than employment issues, suggesting they support tighter monetary policy, as the Iran war pushes up energy prices while the job market remains weak.

Written by: Professor Li Huifen, Greater Bay Area Family Office Association

(The author does not hold the above-mentioned stocks.)