“The Biggest Concern Is Stagflation” – Factory Orders Tumble As Services Surveys Signal Soaring Inflation

“The Biggest Concern Is Stagflation” – Factory Orders Tumble As Services Surveys Signal Soaring Inflation

Echoing the Manufacturing surveys’ main theme, US Services sector surveys from Markit and ISM show input costs are exploding higher.

Despite weakness in ‘hard’ macro data, Markit’s Services survey surged ahead to its highest since July 2014 ( up from 59.8 to 60.4) with new order growth at six-year highs. PMI’s Services survey exploded higher to 63.7 (vs 59.0 exp) – a record high…

Source: Bloomberg

Comparing all the surveys

  • Markit US Manufacturing rose from 58.6 to 59.1

  • Markit US Services rose from 59.8 to 60.4

  • ISM US Manufacturing surged from 60.8 to 64.7

  • ISM US Services exploded from 55.3 to 63.7 – a record high

Source: Bloomberg

All seven broad categories monitored by the US Sector PMI series registered an increase in output during March and a similar pattern was seen for incoming new work.

Employment growth continued in six of the seven categories, with consumer services the only exception. Meanwhile, strong cost pressures persisted in March, led by a survey-record rise in input prices across the basic materials category.

On the price front, input costs soared in March.

The rate of inflation accelerated to the fastest since data collection for the services survey began in October 2009. Anecdotal evidence widely linked the uptick in costs to higher prices for key inputs such as PPE, paper, plastics, fuel and transportation. Subsequently, firms sought to pass on higher costs to clients through a sharper rise in selling prices. A number of companies also stated that stronger client demand allowed a greater proportion of the hike in costs to be passed through. The resulting rate of charge inflation was the quickest on record.

So what is up and what is down in price?

Commodities Up in Price

Chemicals; Construction Materials; Construction Services; Copper Products (2); Diesel (4); Electrical Components (2); Exam Gloves (6); Food & Beverage; Freight (4); Fuel (3); Gasoline (4); Gasoline-Related Products; Labor (4); Labor — Construction; Labor — Temporary (3); Lumber (3); Oriented Strand Board (OSB) (4); Packaging Materials; Paint-Related Products; Poly Products; Polyvinyl Chloride (PVC) Products (7); Resin Products (3); Steel (7); Steel Conduit; Steel Products (3); Steel — Rolled; Trucking Services; and Wood Products (2).

Commodities Down in Price

Personal Protective Equipment (PPE)

“There was a substantial increase in the rate of growth in the services sector in March,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

The lifting of pandemic-related restrictions “has released pent-up demand,” he said.

Source: Bloomberg

ISM’s measure of new orders increased in March to a record 67.2 from 51.9 a month earlier.

The gauge of business activity, which parallels the ISM factory production gauge, jumped to 69.4, also the highest in data to 1997, from a February reading of 55.5.

Services’ Delivery times also lengthened slightly. The group’s manufacturing report last week showed a supplier deliveries index at an almost 47-year high.

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

The recent surge in service sector growth shows no sign of abating, with another impressive performance in March rounding off a quarter in which the PMI surveys indicate that the economy grew at an annualized rate of approximately 5%.

“While consumer demand is rising especially strongly for goods, the surveys are now also showing rising activity in the consumer services sector, linked to the vaccine roll-out, looser virus containment measures and the fresh injection of stimulus in March. Financial services growth is also booming, in part reflecting buoyant housing and equity markets, and business spending on services is likewise picking up as firms look ahead to better times, resulting in a very broad-based and powerful looking upturn in the economy.

High levels of new business inflows, rising business confidence and an increasing appetite to hire new staff suggest the economy will also see a strong second quarter, especially if the vaccine roll-out continues apace.

The biggest concern is inflation, with price gauges hitting new survey highs in March as demand often exceeded supply for a wide variety of goods and services.”

“Concern” is right – but the big threat is stagflation as while prices are exploding higher (prices paid for materials jumped to 74, the highest since July 2008, from 71.8 a month earlier)…

Source: Bloomberg

Real manufacturing – factory orders – are tumbling…

Source: Bloomberg

Get back to work Mr.Powell! Overheating?

Perhaps that’s why the market is pricing in an accelerated timeline for The Fed to hike rate and keep hiking…

Source: Bloomberg

Tyler Durden
Mon, 04/05/2021 – 10:10

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