Although one imagines next month’s survey will be more “interesting” given that it will presumably contain some anecdotes about the deep-freeze and associated effects on businesses, the Dallas Fed was officially a beat for February.
The headline gauge printed 17.2 versus expectations for 5.0. The range from the handful of economists who ventured a guess was -20 to 10.
Regional Fed surveys don’t make for the most exciting reading, and this is no exception. However, the market is looking for signs of price pressures, so it’s worth at least taking a look at the subcomponents to see how things are progressing in that regard.
The color accompanying February’s Dallas Fed noted that “price pressures rose while wage pressures held mostly steady.” The raw materials prices index ticked higher to a 10-year peak at 57.4.
To recapitulate, frame, and otherwise contextualize this, ISM prices paid surged last month, the latest Philly Fed showed a notable disconnect between prices paid and prices received, and Empire prices paid hit the highest since 2011 in the February survey vintage.
The Dallas Fed cited “widespread reports of supply-chain disruptions driving up costs,” echoing remarks from pretty much every other survey you care to peruse.
I’ll leave it to readers to decide whether this counts as incremental information. The special questions for February included a query on the extent to which supply chain disruptions have adversely affected operations. Of the (roughly) 36% of manufacturing firms who reported experiencing supply chain disruptions or delays, nearly 71% said their input costs had increased. And yet, of those same respondents, just 43.8% noted higher selling prices. Only a quarter of services sector businesses reported supply chain problems, but the same disparity between rising input costs and selling prices was evident.
I’m not here to make a mountain of a molehill vis-à-vis one “boring” section of one boring regional Fed survey. But it seems as though a pattern is emerging. Input prices and operating costs are rising for US firms and selling prices aren’t necessarily keeping up. If that’s accurate, it’s not great for profitability.
” If that’s accurate, it’s not great for profitability.”
Profitability? Who cares? Are you auditioning to be a writer for The Onion?
Lean into it. Do the work, decide what investments you expect to be lifted by inflation, and own those.
If the cause is supply disruptions, then the question is are these supply disruptions expected to be enduring. If not you have transitory price pressure, not ongoing inflation.
It will be to many dollars chasing a limited number of goods and services that wil lite the fuse for inflation. The dollars will come from the proposed 1.9 trillion stimulus package. Get ready. The Fed is behind the curve.