Signs Of Price Pressures Continue Unabated In Empire Survey

Signs Of Price Pressures Continue Unabated In Empire Survey

It’s a broken record. Input prices are rising. And PMIs continue to reflect as much.

This week’s data stateside kicked off with Empire manufacturing, which beat. The headline gauge printed 17.4, the highest since last summer and better than the 15 the market was looking for.

Given the macro backdrop, all eyes were on prices paid, and they didn’t disappoint. Input prices rose at the briskest pace in a decade, which was true last month too, by the way. 64.4 is the highest read since mid-2011.

That looks like an alarming surge. It’ll be more headline fodder for the inflation crowd, and it’s incremental for the reflation story. Remember, there is a distinction between inflation and reflation. The latter is a narrative about a pro-growth macro regime. The former is just what it sounds like.

The color accompanying the survey described “sharp input price increases” and noted that “the prices received index was little changed from last month’s two-year high, pointing to ongoing selling price increases.”

Of course, you do want to at least acknowledge that some of this is attributable to demand. Also, supply chain distortions are still in play and getting a “clean” read on anything is still mostly impossible. We won’t know what the picture actually looks like for months. “Delivery times again rose at the fastest pace in a year,” the survey said.

Firms are optimistic and anticipate “significant increases in employment.” But, again, price pressures are the story right now. It looks as though the prices paid-received spread is the widest in a decade (figure below). That bodes poorly for margins.

“The index for future inventories rose to a multi-year high, and both the future prices paid and prices received indexes continued to march upward,” the New York Fed remarked. “The index for future employment rose to its highest level in over ten years, suggesting that firms widely expect to increase employment in the months ahead.”

So, the good news is that when consumer prices rise to keep pace with surging input prices, at least the consumers will have jobs.


4 thoughts on “Signs Of Price Pressures Continue Unabated In Empire Survey

  1. Within the time warp of pandemic data disconnections, it’s understandable that there’s a lot of hyperreaction kneejerking related to micro data prints. The pandemic is compressing and accelerating time, like an HG Wells Time Machine — with enough whiplash to make most people loose perspective.

    It makes sense that in a singularity there will be unabated pressures, distortions and greater noise, thus the once in a century fallout of economic trends are being viewed daily as-if this is somehow all connected to some theoretical truth. The on-going screaming about hyperinflation and visions of breadlines or people with wheelbarrows of hundred dollar bills are cartoonish at best.

    Long-term trends are what matter, but of course this is the time to be hypervigilant and anxious about how each profound second is critical.

    I ran across an interesting story at the Fed, called: Why the Rise in House Prices, Ownership after WWII?

    It offers an example of long-term thinking and research trends

    “Schlagenhauf: Well, goods are constructed in another sector which economists call “the goods sector” not surprisingly.

    So, even though housing prices went up, the people in the goods sector, income grew much faster; they could afford these houses.
    So, as we worked on this project and we realized there was this relative productivity change, biased toward consumer goods and not housing. When we studied this and put it in the model that was the key to explaining home price increases. The fact that we had one sector being more productive and not having the big price increases, income growing compared to the construction sector. That was the key to being able to explain why we had this big change in prices at the same time the home ownership rate went up.”

    ==> With that in mind, the current import and export of goods doesn’t seem like its screaming hyperinflation, if anything the current read looks very much like 2008 and as most of us know, there wasn’t screaming explosive hyperinflation during the last 12 years or so. If anything, commodities, inflation and all the data flowing in, is disconnected from real long term trends. Amen.

  2. Check out this FRED. 10 yr 2year spread related to exports, imports. 34 years and 4 “dips”. The pattern is fascinating, but it implies lower yields and an odd relationship with goods, perhaps suggesting that globalization and efficiency are forcing disinflation? In a way, that looks like Japan.

    1. “…perhaps suggesting that globalization and efficiency are forcing disinflation.” Isn’t the whole point of globalization and efficiency (read productivity) to help companies lower costs, allowing them to lower their prices a bit to stimulate demand? All of this should collectively contribute to disinflation. Economists love to talk about growth, and nominally companies, too, would like to achieve top line growth, but in the short to intermediate term, cutting costs is an easier strategy and offers protection to margins.

      1. Mr. Lucky,

        I’m thinking about the post pandemic world that’s almost totally focused on Amazon, with a sprinkle of other retail giants, who all will get by with fewer employees. As we eventually go back to mediocre growth trends — how likely is it that growth will accelerate from this post stimulus singularity? Weaning poor people off stimulus will be tuff and ugly, but what happens when Costco can’t grow revenue (out of thin air)? That’s probably on the minds of all the retail giants, who are currently carving out the future. As for the shell shocked Mom & Pop ghosts that haunt strip malls, those clanking chains will go silent. It’ll be interesting to see how commercial RE pans out during the great recovery …

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