‘Significant Concern’ Creeps Into Services Sector As Prices Soar

As expected, price pressures were evident in the February vintage of ISM services.

The prices paid gauge jumped sharply from 64.2 in January all the way to 71.8 last month (red, below).

That’s the highest since September of 2008 and is fuel on the fire for those inclined to cite PMIs as evidence that consumer price inflation is just around the corner. Only one industry reported lower prices paid for the month (Information).

“Suppliers are taking the opportunity with the commodity-price increases in the last few months to propose price increases that are above and beyond normal expectations, causing significant concern,” one respondent said. That respondent was from the Accommodation & Food Services sector. This is a bad time for businesses in that space to get pinched, as it could curtail hiring.

Note that the employment gauge dropped, even as it remained in expansion territory (orange, above).

Allusions to supply chain distortions were ubiquitous. “Exponential demand for critical supplies due to [the] pandemic is driving distributer allocations and forcing alternative sourcing,” one respondent from the health care sector remarked. “Supplier deliveries continue to be an issue as well as lead-times,” someone in retail fretted, adding that “price increases are occurring with more frequency for products containing raw materials such as copper and steel.”

There were more. But you get the idea.

The good news is that demand remained at least a semblance of strong, but the headline print for February (55.3) represented a downshift from January and a marked miss to consensus. It was also a nine-month low and stands in stark contrast to ISM manufacturing (where price pressures are also running rampant.)

“Production-capacity constraints, material shortages and challenges in logistics and human resources are impacting the supply chain,” ISM Chair Anthony Nieves remarked, in a press release.

Separately, the final read on IHS Markit’s services sector gauge for February moved higher from the flash print. There too, price pressures were (more than) evident. The input prices index leapt to the highest in series history.

“Cost pressures remained elevated, with the rate of input cost inflation accelerating to the fastest on record,” IHS Markit said. “In response, firms raised their selling prices at the second-quickest rate since data collection began over 11 years ago.”

Employment in services, the same release noted, “continued to rise in February, albeit only fractionally.”


 

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5 thoughts on “‘Significant Concern’ Creeps Into Services Sector As Prices Soar

  1. I am surprised to see such strong inflation pressures in the services. Would be interesting to see which sub-sectors we are seeing these price pressures.

    1. Will be interesting to see the hair-on-fire inflation figures once Q2 2020 oil prices starting coming into the YoY calculations. Despite everyone, including, presumedly, the highly esteemed Mr. Summers, knowing that we should expect outlandish inflation for this reason, we very well might end up with hysteria on our hands.

      1. It’s definitely interesting to see something called inflation and then related to money printing when in the middle of a multiyear pandemic which is essentially limiting supply chains and production capacity. Print all the money you want, take all the money you want out of circulation and it won’t stop the pandemic from existing. I wonder how much of Feb inflation related to natural gas prices due to the great freeze.

  2. While I can’t correlate what I see to the macro numbers, anecdotally a lot of what I buy is at rising prices. I don’t see this as systemic as much as opportunistic. Many providers are test the waters to see “what the traffic will bear.” On the other hand I did just buy a standby generator, something not available since early fall, at least in my area. Not only did I finally get one, but I got it with a solid 10%+ rebate from the base price on offer in Sept. On the other hand, some of the service and food prices have as much as doubled in recent weeks.

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