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?

Source: Bloomberg

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…

Source: Bloomberg

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!?