IHS Markit’s PMIs for the US seemingly ignored the virus surge and associated new lockdowns in November, and the flash prints for this month suggested ongoing resilience for the world’s biggest economy, albeit with a bevy of caveats.
The preliminary print on the services gauge was 55.3, a smidge below estimates and a three-month low, but sill in expansion territory for the fifth consecutive month.
The manufacturing index beat, printing 56.5 versus an expected 55.8. The flash read for December suggested factory activity remained on par with November.
A look at the subindexes does show the services sector employment gauge dropping to 53.9 from 57.8. In manufacturing, the employment index moved slightly higher.
“The outlook for output over the coming year remained upbeat in December, but was tempered by renewed uncertainty regarding the pandemic and surging costs,” IHS Markit said. “Business expectations fell to a three-month low [and] hesitancy was also reflected in slower employment growth, as backlogs of work rose at only a fractional pace.”
Those keeping track of the narrative might recall that November’s PMIs suggested inflation pressures are building. That dynamic continued apace.
“Severe supply chain disruptions remained evident in December, with delays more prevalent than at any time since comparable data were available in 2007,” the color that accompanied the December release reads. “As a result of demand rising but supply worsening, firms reported unprecedented supplier price rises.”
The problem is that in the current environment, passing along rising prices to consumers is a delicate balancing act. Shifting consumption patterns in the wake of the pandemic made it easier for manufacturers to raise prices, but for service providers, it’s a different story.
“Although manufacturers raised their selling prices at the fastest rate since April 2011, service providers recorded a softer pace of charge inflation amid continual efforts to drive sales,” IHS Markit said.
Obviously, this situation becomes more precarious as labor market momentum slows. Input cost inflation doesn’t just disappear overnight, but jobs can, and consumers can retrench in a hurry — just ask November’s lackluster retail sales figures, also out Wednesday.
“While vaccine developments mean some of the cloud caused by the pandemic should lift as we head through 2021, rising case numbers continue to darken the near-term outlook,” IHS Markit’s Chief Business Economist, Chris Williamson, remarked, underscoring the point. “In particular, resurgent virus numbers were cited as a key factor behind a pull-back in hiring, hinting that the labor market has cooled amid growing caution among employers.”
I don’t generally like to traffic in “stagflation” narratives, as that’s usually just cheap headline fodder, but it goes without saying that it’s not generally desirable for spending to falter in an environment where supply chain disruptions are driving up producer prices and inflation expectations are rising. If, for whatever reason, demand refuses to respond to fiscal stimulus, printing more money could make the problem worse.
“If, for whatever reason, demand refuses to respond to fiscal stimulus, printing more money could make the problem worse.” Seems limits to MMT are nuanced.