Manufacturing Surveys Signal Stagflationary Threat Amid Record Supply Chain Delays
After dipping in January (and in flash Feb data), US Manufacturing survey data was expected to ’stabilize‘ in February (despite a resurgence in Services) tracking the relative stabilization (albeit at low levels) of the broad macro picture.
Markit US Manufacturing PMI fell to 58.6 from 59.2 (this was above the 58.5 flash print)
Markit US Services PMI rose to 58.9 from 58.3 (highest since 2014)
ISM Manufacturing rose to 60.8 from 58.7 (highest since 2004)
ISM Services rose from 57.7 to 58.7 (highest since Feb 2019)
So take your pick?
As we have detailed previously, the headline PMI figure was wrongly buoyed by a substantial lengthening of supplier delivery times amid significant supply chain disruption. Ordinarily a signal of improving operating conditions, longer lead times for inputs reportedly stemmed from supplier shortages and transportation delays due to coronavirus disease 2019 (COVID-19) restrictions. The extent to which wait times lengthened was the greatest since data collection began in May 2007.
Prices exploded to their highest since 2008 – when oil was trading at $140 – while new orders remain notably lagging…
Chris Williamson, Chief Business Economist at IHS Markit said:
“Another month of strong production growth suggests that the US manufacturing sector is close to fully recovering the output lost to the pandemic last year, and a renewed surge in optimism suggests the recovery has much further to run.
„Business expectations about the year ahead jumped to a level only exceeded once over the past six years, buoyed by a cocktail of stimulus and post-COVID recovery hopes as life continues to return to normal amid vaccine roll outs.
“Particularly encouraging is a marked improvement in demand for machinery and equipment, hinting strongly at strengthening business investment spending.
„However, new orders for consumer goods showed the strongest back-to back monthly gains since the pandemic began, suggesting higher household spending is also feeding through to higher production.
“A concern is that shortages of raw materials have become a growing problem, with record supply chain delays reported in February, contributing to the steepest rise in material costs seen over the past decade.
„Prices charged for a wide variety of goods coming out of factories are consequently rising, which will likely feed through to higher consumer inflation.”
Smells like stagflation to us…
Slower growth but soaring inflation!?