The May vintage of the Philadelphia Fed survey revealed a less-than-ideal, albeit entirely predictable, juxtaposition: Price pressures abound and activity may have peaked.
The headline general business conditions index missed by a mile, printing 31.5 (figure below), well shy of the 41.5 estimate, near the low-end of the range and down markedly from April.
The series is volatile, and we’re obviously flying at high altitude, but sometimes a miss is just a miss.
Firms are still optimistic, but less so. “The respondents continue to expect growth over the next six months, although most of the survey’s future indexes declined,” the accompanying color said.
It’s a broken record by now, but to say it’s worth mentioning would be an understatement: Price pressures are manifest.
“Price increases were more widespread this month for the firms’ inputs and own goods,” the survey noted. The prices paid gauge rose to 76.8, the highest in more than 41 years (figure below).
The prices received index hit a four-decade high as well. The spread between the two was basically stable from April, but remained very elevated. No firms reported a decrease in input prices.
Summing up this month’s special questions, the Philly Fed noted that,
Firms were asked to forecast the changes in the prices of their own products and for US consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 5.0 percent, an increase from 3.0 percent when the question was last asked in February. The firms’ actual price change over the past year was 2.3 percent. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 4.0 percent over the next four quarters, an increase from 3.0 percent in the previous quarter. When asked about the rate of inflation for US consumers over the next year, the firms’ median forecast was 4.0 percent, an increase from 3.0 percent in the previous quarter. The firms’ median forecast for the long-run (10-year average) inflation rate was 3.0 percent, the same as in February.
I suppose you could argue that supports the “transitory” narrative, but it also bolsters a variety of other cautious tales, including the notion that both wages and consumer prices are headed higher in the near-term. That can become self-fulfilling.
Blame it all on “bottlenecks.”
I must be the only person who says, ‘ya, huge difference from one year ago, no sht sherlock; but airlines hotels etc are 35% below 2019 still. there are significant short term structural issues, like child care/schools and benefits that are making “supply” an issue for the top 20% of the populace that didnt even feel a recession. theres alos longer term stuctural issues like covid/lack of vaxx’ing, and low wages that conspire to keep spending and growth down beyond the point at which everyone gets their vacation/travel fix.” we will seey stagflation this summer and hope we can pull up and out by the Fall…but most elements of our society (tech driven) still point to deflation…or rather for polite audiences, dis-inflation.