S&P flash US services Purchasing Managers' Index (PMI) for September came in at 55.4, slightly above economists' expectation of 55.2. Meanwhile, the S&P flash US manufacturing PMI for September was 47.0, which was weaker than the 48.6 economists were expecting.

Citi economist Veronica Clark joins Catalysts to discuss the print and what it signals about the health of the economy as the Federal Reserve continues to ease interest rates.

Clark notes that the services measure has been "remarkably steady" over the last five months. She highlights that the employment subcomponent is still in "contractionary territory" as it sits below 50. Meanwhile, she explains that manufacturing came in weaker than expected and that the industry is slowing overall, especially as the sector saw job losses during the month of August.

Heading into the year-end, Clark believes the recession risk is "still pretty elevated." Thus, the state of the labor market is critically important. "We do think this is a genuine weakening of the labor market, and we can see that more in data that we're going to get next Friday. We'll have another jobs report before we get to that November decision also. But I think both of those should show this weakening trend continuing," she tells Yahoo Finance.

If the labor market continues to weaken, Clark believes that the Federal Reserve could cut 50 basis points in November before continuing with 25-basis-point cuts.

While she sees the risk of inflationary pressures looking "pretty muted" over the next year, she will keep a close eye on the housing market. She explains, "Where you would expect to see any reemerging signs of inflationary pressures first would be in something like the housing market if we see home prices picking up or rents picking up... we have seen mortgage rates coming down, but those mortgage applications still look very low. I think what could be happening is that the labor market is weakening, and that's going to offset any boost you would get from the lower rates in that sector."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl