Those looking for more evidence of price pressures got it (predictably) from ISM manufacturing on Monday.
Although the headline gauge slipped alongside production and new orders, prices paid surged.
At 58.7, the headline print for January was a miss. Consensus was looking for 60.
The US has become a bifurcated economy in the post-pandemic world. Indeed, COVID-19 flipped America on its head. Manufacturing is resilient, while the services sector continues to labor (or, perhaps more aptly, not labor) under the weight of virus containment protocols.
The breakdown on the January ISM report suggested factory activity is still robust, but it also screamed supply chain problems.
The prices paid gauge printed the highest in nearly a decade, while the customer inventories index hit the lowest since 2009. Backlogs were the highest since the summer of 2018.
ISM’s Timothy Fiore pointed to “absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers” as factors which “continue to cause strains that limit manufacturing growth potential.”
The final read on IHS Markit’s gauge for January was a touch higher than the flash print at 59.2. That’s an all-time high. Output prices were the highest since July of 2008.
“Manufacturers are encountering major supply problems, especially in relation to sourcing inputs from overseas due to a lack of shipping capacity,” Chris Williamson, Chief Business Economist at IHS Markit, remarked, adding that,
Lead times are lengthening to an extent not previously seen in the survey’s history, meaning costs are rising as firms struggle to source sufficient quantities of inputs to meet production needs. These higher costs are being passed on to customers in the form of higher prices, which rose in January at the fastest rate since 2008. These price pressures should ease assuming supply conditions start to improve soon, but could result in some near-term uplift to consumer goods price inflation.
This is all fodder for those who insist the Fed is underestimating the scope for prices to rise quickly.
Of course, in the final analysis, you can only raise prices so much if people are unemployed. The combination of rising consumer prices and elevated unemployment is not a good one.
Inflation statistics are not reliable now, due to rapid shifts in market baskets.