As business executives struggle with the potentially unfavorable policies of the incoming White House, the initial excitement among firms following Donald Trump’s victory in the U.S. presidential election has subsided.
S&P Global reported Friday that the reading of a poll of senior executives who purchase supplies for service-oriented businesses fell to 49.7 in February, a 25-month low, from 52.8 in January. Contraction is indicated by readings less than 50.
The assumption that Trump would pursue business-friendly policies caused the S&P Global Services survey to soar to a nearly three-year high in December following his victory.
However, businesses have also become uneasy due to the president’s persistent threats of imposing taxes on foreign nations. Higher tariffs might increase their own expenses, which might drastically reduce American exporters’ sales if other nations retaliate.
On the other hand, significant reductions in public spending may hurt revenue and lower demand for products and services from the private sector. Private spending has been stimulated by government spending, but at the expense of a skyrocketing U.S. deficit.
“U.S. business activity came close to stalling in February,” according to S&P. “New order growth also weakened sharply and business expectations for the year ahead slumped amid growing concerns and uncertainty related to federal government policies.”
The majority of Americans work for service corporations in industries including banking, healthcare, travel, and leisure.
Although the S&P indicated that the gain might not stay, a similar measure of manufacturers increased from 51.2 the previous month to 51.6, an eight-month high.
In anticipation of possible Trump tariffs, manufacturers placed higher orders for imported materials and commodities, indicating “merely a temporary boost,” the report stated.
Every month, the S&P surveys serve as the initial gauge of the state of the American economy.
Some manufactured goods saw price increases as companies attempted to prepare for potential additional levies. However, fierce service rivalry kept costs low and drove inflation to its lowest level in five years.
For the most part, employment was stagnant.
Big picture: In spite of high interest rates and persistent inflation, the economy has expanded quickly during the last two years. Americans have been able to spend enough money to avoid a recession and maintain low unemployment rates because to a robust work market.
However, before making major decisions, businesses are awaiting greater clarity on taxes, spending, regulations, tariffs, and immigration enforcement.
Early in the year, the uncertainty may limit economic development.
Forecasting the future: “The upbeat mood seen among U.S. businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices,” said S&P.
Market response: Following Walmart’s (WMT) cautious remarks about the status of the economy, the Dow Jones Industrial Average (DJIA) and S&P 500 SPX experienced further declines in Friday trading.
