‘Anything But Transitory’ – US Services Sector Surveys Signal Serious Stagflation

‘Anything But Transitory’ – US Services Sector Surveys Signal Serious Stagflation

After the mixed picture from manufacturing surveys (PMI higher, ISM lower), analysts expected Services sector surveys to improve in April. And amid continued weakness in hard economic data, Markit’s Services sector survey thrashed expectations (64.7 vs 63.1 exp) and surged to record high (with its 11th month of expansion). However, like its manufacturing brother, ISM Services disappointed expectations and fell from 63.7 to 62.7 (well below the expected rise to 64.1)

Source: Bloomberg

Overall, the picture from ‘soft’ survey-land is ‘mixed’ at best…

Markit Manufacturing rose in April to record high

PMI Manufacturing plunged in April after reaching its highest since 1983 in March

Markit Services jump in April to record high

PMI Services dropped in April from record highs in March

Source: Bloomberg

Stagflation fears remain front and center…

As inflation soars…

“…input costs faced by service sector firms increased at an unprecedented rate in April. The substantial rise in cost burdens was often linked to hikes in supplier prices and greater transportation fees. Companies particularly noted higher costs of plastic, packaging, PPE and fuel.”

And production/output falls…

The IHS Markit Composite PMI Output Index posted 63.5 in April, up from 59.7 in March, to signal the sharpest upturn in private sector output since data collection began in October 2009.

The overall expansion was supported by faster growth in both manufacturing and service sector activity.

And US is leading the world…

Source: Bloomberg

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

“Thanks to the cocktail of a successful vaccine roll-out, the reopening of the economy, ultra-accommodative monetary policy and injection of fresh fiscal stimulus, businesses are reporting the strongest surge in demand seen for at least a decade.

“The upswing in demand has led to one of the strongest months of job creation yet recorded by the survey as business prepares for better times ahead.

The biggest threat to the outlook remains new virus variants, which will inevitably mean international travel and associated business activity will stay under pressure for some time to come, but in the meantime the domestic economy is faring very well, especially consumer facing industries.

Another concern is prices, with a record increase in service sector charges highlighting how inflationary pressures are by no means confined to the manufacturing sector. Indicators of price pressures and capacity constraints will need to be monitored closely to assess whether such price rises are transitory.”

This sounds like anything but transitory, especially considering some of the survey respondents:

“Restaurant capacity is increasing quickly as restrictions are removed. Consumers have pent-up demand; sales are increasing, and the labor pool is tight. Supply chain is challenged at every level as businesses across the U.S. ramp up.” (Accommodation & Food Services)
“Delays in container deliveries are now impacting our business.” (Agriculture, Forestry, Fishing & Hunting)
“Higher volume of activity in anticipation of a reopening of the campus in the fall of 2021.” (Educational Services)
“Elective surgeries coming back to pre-COVID-19 rates. Patient census continues to drop, as it does this time of year.” (Health Care & Social Assistance)
“Overall, there is pricing pressure for goods and services in the market.” (Information)
“Supply has been dwarfed by demand [and] ocean-transport logistics imbalances with ships and containers. North America parcel carriers swamped with volume-processing constraints, and highway carriers can’t supply drivers, regardless of choked original equipment manufacturer [OEM] truck orders. Rail intermodal is only competitive among two dozen or so origins, to about as many destinations.” (Professional, Scientific & Technical Services)
“Business is generally upbeat. There is pent-up demand and resources, especially people. The pandemic, while not over, is subsiding in most places with the vaccines. Many people who were previously unable to think about relocating for jobs are now doing so. Other areas of the economy are opening up. Many medical treatments that were not critical and were put off are now being administered.” (Public Administration)
“Business levels are quite strong as we head into the spring construction season.” (Real Estate, Rental & Leasing)
“Business optimism is high. Orders are picking up, and there is a strong demand for capital investments.” (Utilities)
“Business is very robust, but logistics and supply cannot keep up.” (Wholesale Trade)

And then this:

“Consistent with the past year, labor continues to be the biggest issue we are facing. Finding and retaining labor — skilled and unskilled — is highly challenging and frustrating. As the challenges continue, we are not accepting all the work that we could if we had the labor.” (Construction)

Which is to be expected when the government pays “workers” more to do no work.

Tyler Durden
Wed, 05/05/2021 – 10:06

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