S&P Global’s Services PMI Shows First Contraction in More Than Three Years S&P Global’s purchasing managers index for services providers fell to 49.8 points in March from 51.7 in February
(…) “Confidence in the outlook weakened against a backdrop of rising cost pressures as a surge in energy prices following the outbreak of war in the Middle East cast a shadow over the sector,” S&P Global said. Firms said the negative effect of the war on sentiment added to the adverse impact of trade tariffs.
“Clearly much depends on the duration of the conflict,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. The fact business confidence dipped but didn’t slump “is a sign that businesses are hopeful of a swift resolution to the war.”
There remains a concern, however, that energy disruption may last beyond the actual conflict and test the resilience of businesses and households in the coming months, he added.
Chris Williamson had much more to say than what the WSJ reported:
“The service sector has slipped into contraction for the first time since January 2023, dragging the overall economy down to a near-stalled 0.5% annualized rate of growth in March.
Worst hit is consumer-facing service sectors where, barring the pandemic lockdowns, the downturn reported in March was among the steepest recorded since data were first available in 2009.
However, financial services and tech, both of which performed strongly last year, have shown some signs of weaker performance amid financial market volatility and concerns over higher interest rates, which have deterred investment.
“Key to the deteriorating growth trend is a pull-back in spending amid worsening affordability, with costs and selling prices surging higher in March amid spiking energy prices. The survey data are broadly consistent with consumer price inflation accelerating close to 4% as firms increasingly seek to push through higher costs onto customers in the coming months.
“The stagflationary environment of stalled growth and surging price pressures pictured by the PMI presents a major challenge to policymakers, especially with the March survey also indicating falling employment. Clearly much depends on the duration of the conflict.
The fact that business confidence has merely dipped and not slumped is a sign that businesses are hopeful of a swift resolution to the war. However, a concern is that the energy disruption unleashed by the war in the Middle East may well have an impact that lasts far longer than any actual conflict and may test the resilience of business and households over the coming months.”
The ISM Services PMI was much more upbeat:
In March, the Services PMI registered 54 percent, a decrease of 2.1 percentage points compared to February’s figure of 56.1 percent and its second-highest reading since October 2024 (55.5 percent).
The Business Activity Index remained in expansion territory in March but dropped from February’s reading of 59.9 percent to 53.9 percent, its lowest reading since September 2025 (50.2 percent).
The New Orders Index registered 60.6 percent, 2 percentage points above February’s figure of 58.6 percent and its highest level since February 2023 (61 percent).
The Employment Index contracted for the first time in four months with a reading of 45.2 percent, a 6.6-percentage point decrease from the 51.8 percent recorded in February.
The Prices Index registered 70.7 percent in March, a 7.7-percentage point increase over February’s figure of 63 percent and its highest reading since October 2022 (70.7 percent). The index has exceeded 60 percent for 16 straight months but is only 3.5 percentage points above its 12-month average of 67.2 percent.
Contracting services employment and higher inflation are worrying. Panelist commentary highlighted offshoring and cost-cutting. One respondent noted that lower US headcount was offset by higher employment in low-cost geographies.
Ed Yardeni shows how the PMI price index leads the PPI by about 6 months:
And this other chart that shows that PPI and CPI/PCED inflation are indeed correlated:
CONSUMER WATCH
Nonfarm payrolls rose 178k in March, well above expectations. Revisions continue to blur the picture. Payroll growth was revised down by 41k to -133k in February but revised up by 34k to 160k in January. Three-month average payroll growth now stands at 68k. The last 4 months: 47k.
Taking the weather impact into account, Goldman Sachs estimates that “the underlying pace of job growth now stands at 53k, roughly in line with our estimate of the breakeven pace of job growth needed to keep the unemployment rate stable.”
If so, employment growth will be 0.4% YoY in 2026.
Average hourly earnings increased 0.24% MoM in March, +3.5% YoY. Wages for production and non-supervisory workers increased by 0.16% MoM, +3.4% YoY.
Wages are thus rising at a 3.0-3.5% pace, bring labor income growth in the 3.5-4.0% range assuming stable hours worked, leaving little room for real gains after inflation which S&P Global puts at 4% in March.
Much focus is on the unemployment rate which declined to 4.26% in March, thanks to a 396k decline in the size of the labor force.
The unemployment rate is roughly in line with previous low points in 2000, 2006 and 2019 but the employment-population ratio, at 59.2 in March, is significantly lower than at previous unemployment lows and keeps falling.
Only 59% of the US population are working, compared with 64.45 in 2000 and 61.1% at the end of 2019.
Total employment only rose 0.16% since March 2025. That’s 260k or 21k per month.
Running Out of Oil?
(Goldman Sachs)
As the last tankers that crossed the Strait of Hormuz before the war are reaching their destination, concerns about potential oil shortages are rising. (…)
Our three-way analysis highlights already critically low supplies of petrochemical feedstocks — naphtha and LPG — in Asia, with cross-product scarcity in multiple Asian countries in April. (…)
Asian countries in our sample (accounting for 1/3 of global refined products demand) typically source about ½ of their refined products supplies from the Persian Gulf, with South Korea and Singapore relying on the Persian Gulf for nearly ¾ of their refined products supplies (including via crude imports processed into products). (…)
Countries with large strategic oil reserves (e.g. China, Japan) are better positioned to offset the imports shock while other major products exporters (e.g. South Korea, Singapore) could respond by limiting products exports. (…)
Diesel and jet fuel prices have rallied most, with average global increases of around $130-140/bbl (150%). Higher price responses can reflect both tight current supply but also precautionary restocking, especially in richer countries and even in the countries not directly affected by the Hormuz shock (e.g. the US). It also captures second-order trade effects for countries exposed to the shock via reliance on directly affected partners (e.g. Australia importing oil from South Korea and Singapore).
Source: Platts, S&P Global, Goldman Sachs Global Investment Research
Source: Carl Quintanilla
Most deliveries in Africa have already stopped.
Most deliveries in Asia and SE Asia stopped yesterday.
Most deliveries in Europe will stop April 10.
Most deliveries in the USA will stop April 15.
EARNINGS WATCH
The Q1’26 earnings season begins this week but we already have this whose quarter ends in February.
The earnings of the 18 companies having reported exploded 86.8% on revenues up 17.0%.
The 5 IT companies surprised by 20.0%, the 3 Industrials by 13.7% and the 5 Consumer Discretionary by 6.6%.
As a result, trailing EPS are now $283.49 (from $275.54 in February) and forward EPS $338.29 ($314.77).
Ed yardeni:
Despite the typical pattern of analysts’ estimates drifting lower as the reporting season approaches, their Q1 estimates stayed remarkably steady despite the war, and they have increased their forecasts for Q2-Q4.
Total forward earnings for the S&P 500 has continued to climb, even excluding the Magnificent-7.
The forward P/E of the Mag-7 is down from 31.2 on November 3, 2025, to 23.7 currently.
The IT sector’s forward P/E at 20.7 has now converged with the S&P 500’s 19.9.
This Is Starting to Look Like a Slow-Motion Bank Run
By Natasha Sarin, a NYT contributing Opinion writer and a professor at Yale Law School and the president of the Budget Lab at Yale.
Over the past few years, one of the signature funds at Blackstone, the private equity giant, has delivered, on average, 10 percent annual returns for its investors. The fund, which specializes in private credit, has lent money to more than 400 borrowers, who in turn have deployed those loans to become more profitable themselves.
And yet, in the first quarter of this year, nearly 8 percent of the fund’s investors declared they wanted out. Something similar has happened at funds managed by Apollo (where redemption requests hit 11.2 percent), Ares (11.6 percent) and Blue Owl (21.9 percent).
When asked on CNBC to explain why his investors are asking for their cash back, the Blackstone president, Jonathan Gray, blamed “noise” — a “disjointed environment now between what’s happening on the ground with underlying portfolios and what’s happening in the news cycle.”
He may well be right. Another explanation might be that we are witnessing a kind of slow-motion bank run. Investors, spooked by a litany of bad news, are rushing to pull their money out of private credit funds. If they all ask at once, these funds — and potentially the firms that manage them — could falter. (…)
Last October, I suggested that the failures of a few companies that borrowed from private credit funds were the first dominoes to fall and that more would follow. It appears that many private credit investors woke up to that risk — and now want to cash out. (…)
Private credit players may have made bad bets — the software industry might be one, given the impact of artificial intelligence on the business — but, they say, the sector should be free of runs. Losses should be contained to the investors in these firms, end of story.
(…) as private credit has grown, it has started targeting retail investors directly, in addition to big institutional ones. Mostly, that’s been wealthy people, but the scope is broadening. Last week, the Trump administration proposed a rule that would make it easier for 401(k) plans to be invested in private credit, following up on an executive order from the summer that called for “democratizing access to alternative assets.”
As private credit has gone more retail, the investors that make up its base look more like bank depositors. And they’re acting in similar ways, too, skittish and prone to panic. Although private credit funds explicitly limit investors’ ability to cash out on demand, it seems as if many didn’t read the fine print. It’s no surprise that in recent months, as the golden age of private credit looks a little less shiny, individuals are seeking to redeem more of their cash than private credit funds generally permit.
(…) Apollo is asking people to hold on and take 45 cents on every dollar they want back. Other firms are relaxing their redemption caps to meet investor demands, betting that letting itchy investors get out could prevent others from bolting.
If investors run, private credit firms will be forced to liquidate their long-term investments, much like banks were forced to do in the financial crisis. The potential fire sales of loans made to thousands of companies would be debilitating to the system, because they decrease the value of the loans that others have made, too.
Worth keeping in mind, for those nervous about private credit runs, is that the market is a relatively small sliver of the financial sector. It’s a roughly $2 trillion market, compared with a banking industry more than 12 times that size. That means the aftershocks should be smaller than the bank failures of the past.
But we run real risks that the financial system is more interconnected than we appreciate. Banks themselves are wrapped up in private credit lending. Loans that banks are making to non-bank lenders, a group of firms that includes private credit, accelerated more quickly than any other type of bank lending in recent years. That means private credit risks could easily cascade throughout the system. (…)
This blog started to warn about private credit, and private equity, last October 3 (Give Them Credit!) followed by Chris Whalen’s piece on January 2 (Credit and Freedom) and my February 18 post which warned:
And don’t presume this is limited to private credit.
The backlog of unsold companies in private equity is monumental. As the FT notes: “Private equity firms sell assets to themselves at record rate.” This will not end well. And the end may begin in 2026 as private equity companies fail in growing numbers.
The strong rally in silver and gold, and the weakness of crypto tokens, are leading the decline in US fortunes when it comes to the equity markets. Literally dozens of crypto ventures have failed in the past year, notes Comsure. Crypto exchange collapses have led to $30–50 billion in investor losses, the UK consultancy reports. But the greater concern is the mounting backlog of corporate insolvencies, a real and growing danger that could push the US into recession even as short-term interest rates fall.
This right when the US government is taking several regulatory and executive actions to “democratize” access to private equity and private credit for retail and retirement investors.
Among many measures, the SEC is exploring changes to the “accredited investor” definition to focus more on investor sophistication rather than strictly wealth or income criteria.
How will the SEC objectively measure sophistication?
Sophistication is not intelligence, and certainly not judgement (remember LTCM).
Wealth and income are much better measures of one’s ability to weather investment losses than sophistication. This is what the “accredited investor” definition was for.
But a president aggressively deregulating crypto markets won’t be bothered discussing regulations for small investor protection.
KKR’s view (one of the private lenders)
We think this Private Credit cycle will likely be more defined by recovery rates than defaults. During our travels, we heard lots of comments that defaults have only recently spiked. Our team has a slightly different view.
For some time, Kris Novell and the macro team have been tracking Fitch’s broader default measure, which extends beyond a simple missed-payment definition and includes stress events such as PIK’ing (Payment-in-Kind) of interest and amend-and-extend transactions to avoid a default.
(Note: payment-in-kind allows a borrower to preserve cash by capitalizing interest into the loan balance instead of paying it in cash, which can be a sign of stress if used to solve a liquidity problem, often resulting in increasing leverage and potentially lowering recoveries later. Amend-and-extend transactions work similarly by pushing maturities out, often with higher spreads or fees, which can suppress near-term default statistics but lead to more recovery-negative outcomes if the business does not improve).
On that yardstick, the stress rate has been fairly steady at around 5-6% in the past 2 years. Looking ahead, the key to this cycle, we believe, will be in recovery rates, which could land below the 50- 60% of prior cycles. It is hard to predict, but we think that number could actually be 30-40% in certain instances, especially for smaller companies and situations where the lender is not willing to take over the company, or the terms were too loose at the outset.
We believe the endgame winners will be defined less by who can chase yield and more by who can originate well, construct portfolios thoughtfully, and actively manage outcomes when Credit underperforms expectations.
JPM’s Jamie Dimon:
Dimon said private credit “probably does not” pose a systemic risk. But he cautioned that losses on leveraged lending will be higher-than-expected in part because of “modestly” weakened credit standards.
“By and large, private credit does not tend to have great transparency or rigorous valuation ‘marks’ of their loans — this increases the chance that people will sell if they think the environment will get worse — even if actual realized losses barely change,” he said.
He also expressed some apprehension about the private equity industry, saying that it’s a “little surprising” that the alternative asset managers didn’t seize as much on healthy markets to take more of their companies public. Instead, some have been moved to continuation funds, he said.
“Private equity investments are now held for an average of seven years — this is virtually double what it used to be,” he said. “We have generally had nothing but a bull market since the great financial crisis — it’s hard to imagine what will happen if and when we have an extended bear market.” (Bloomberg)
“Probably”?
This is what slow motion means (Via ProPublica):
August 5, 2007: During a conference call with investors, various high-ranking AIG officials stressed the near-absolute security of the credit-default swaps.
“The risk actually undertaken is very modest and remote,” said AIG’s chief risk officer.
Joseph Cassano, who oversaw the unit that dealt in the swaps, was even more emphatic: “It is hard for us with, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions. We see no issues at all emerging. We see no dollar of loss associated with any of that business.”
“That’s why I am sleeping a little bit easier at night,” said Martin Sullivan, AIG’s CEO.
November 7, 2007: In an SEC filing, AIG reports $352 million in unrealized losses from its credit-default swap portfolio, but says it’s “highly unlikely” AIG would really lose any money on the deals.
December 5, 2007: In an SEC filing, AIG discloses $1.05 billion to $1.15 billion in further unrealized losses to its swaps portfolio, a total of approximately $1.5 billion for 2007.
During a conference call with investors, CEO Martin Sullivan explains that the probability that AIG’s credit-default swap portfolio will sustain an “economic loss” is “close to zero.”
February 28, 2008: In its year-end regulatory filing, AIG sets its 2007 total for unrealized losses at $11.5 billion. (…) The next day, CEO Martin Sullivan tells investors that AIG expects those losses to “reverse over the remaining life” of the portfolio. These losses, he said, were “not indicative of the losses AIGFP may realize over time.”
May 8, 2008: In its first quarter filing, AIG ups its estimate of its unrealized losses in 2008 to $9.1 billion through the end of March, for a grand total loss of $20.6 billion over 2007 and 2008.
May 20, 2008: AIG raises $20 billion in private capital to help with the growing problems.
August 6, 2008: In its second quarter filing, AIG ups its unrealized loss in 2008 from the credit-default swaps to $14.7 billion, for a grand total loss of $26.2 billion.
September 15, 2008: Standard & Poors cuts AIG’s credit rating due to “the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.”
November 10, 2008: AIG discloses that it estimates its total unrealized losses from the credit-default swap contracts for 2007 and 2008 at $33.2 billion.
This is when the NY Fed stepped in, deeming AIG too big to fail.
Trump’s Pentagon-first presidency
President Trump’s new budget lays bare the transformation of his presidency, pairing a historic surge in military spending with historic cuts to domestic programs.
The most powerful populist of this century is at risk of becoming what he ran against — a deficit-spending interventionist asking working-class Americans to shoulder the cost of war. (…)
Even as Trump insists the conflict will end soon, his $1.5 trillion budget request for the Pentagon — plus an additional $200 billion ask for Iran costs — would lock in a wartime level of spending.
At a closed-door Easter lunch on Wednesday — accidentally live-streamed and then scrubbed from the White House YouTube page — Trump spelled out the trade-off in the bluntest of terms.
- “We’re fighting wars,” Trump told guests. “We can’t take care of daycare. Medicaid, Medicare, all these individual things. We have to take care of one thing: military protection. We have to guard the country.”
- He said the burden should be on the states, which may have to raise their taxes, and that it’s “not possible” for the federal government to fund all of these programs.
- White House Press Secretary Karoline Leavitt said Trump was referring to fraud in federal programs, and that “his record proves he will always protect and strengthen Social Security, Medicare, and Medicaid.”
Trump’s new budget — more a statement of the White House’s goals than a legislative draft — would reorient the U.S. government around military power at the expense of virtually everything else.
- Defense spending would rise 42% — a buildup the White House itself says exceeds the Reagan administration’s and approaches the pace of spending just before World War II.
- The massive Pentagon budget is framed as a response to an increasingly dangerous world that predates the Iran war, and envisions permanent U.S. military dominance as a governing principle.
Non-defense spending, which includes categories such as public health, scientific research, housing and education, would take a 10% cut, or $73 billion.
- The steepest cuts would fall on the EPA, down 52%; the National Science Foundation, down 55%; and the Small Business Administration, down 67%.
- Agencies spared from the proposed cuts include the Justice Department, which would get a 13% increase to “maximize its capacity to bring violent criminals to justice.” (…)
The combination of foreign adventurism and domestic austerity cuts against the political instincts that brought Trump to power.
- The coalition that delivered Trump his second term — working-class voters, older Americans, rural communities — relies disproportionately on the programs being compressed to fund the military.
- Congressional Republicans face a brutal choice: Back a budget that guts programs their working-class constituents depend on, or break with a president who’s made loyalty the price of survival.
REGIME CHANGE!
A Truth Social post last month had Washington and media insiders scratching their heads: Why exactly had President Trump attacked The New York Times’ Maggie Haberman and some of her “associates” — when everyone in the West Wing knew that she and her reporting partner, Jonathan Swan, had been on book leave for months?
Now it can be told: Haberman and Swan were on the president’s radar because the two supremely wired reporters, stars of the news organization the president is most obsessed with, have been working for more than two years on a book that’s causing high anxiety in Trumpworld.
The book is complete, and Axios can reveal its title: “Regime Change: Inside the Imperial Presidency of Donald Trump.” It’ll be out June 23 from Simon & Schuster.
The cover is clad in gold. Publishing sources say they’ve conducted something like 1,000 interviews. It’s the Trump book that even Trump is waiting for.
The title gives a clear clue about the book’s thesis. For generations, American journalists have parachuted into foreign capitals to chronicle regime change. Swan and Haberman concluded they were covering one at home.
The publisher’s announcement says “Regime Change” takes you inside secret deliberations of a president who has “fundamentally altered the nature of the office he holds — and, with it, how the rest of the world understands American power.”
Behind the scenes: I hear that over the past few weeks, there have been private conversations in the senior ranks of the administration about leaks to Haberman and Swan from meetings in the Oval Office and Situation Room — including from this year.
- Maggie — author of the 2022 bestseller, “Confidence Man: The Making of Donald Trump and the Breaking of America” — kept her role as a CNN contributor while working feverishly on the book (and mostly resisting her compulsion to file the breaking news that courses through her laptop).
- Jonathan, talking to sources deep into the night, hasn’t been seen on TV since he plunged into the book.
On March 16, three days after that Truth Social post, Haberman and Swan were spotted in the West Wing. I’m told the president answered their questions in the Oval Office for an hour.
