Maybe It’s Not ‘Transitory.’ Let’s Try ‘Tolerable’

Slower deliveries, labor constraints, input cost pressures, shortages of key materials and generalized logistical challenges continue to “impact” the “continuity of supply.”

That was the broad strokes takeaway from the latest set of quantified anecdotes (as I’ve taken to describing PMIs) detailing the state of the US services sector which, at least according to private sector payrolls data out Wednesday, hired at a much slower pace last month.

ISM services printed a cartoonish 64.1 for July, the highest ever, and up sharply from June’s 60.1 (figure below). No economist out of 58 surveyed predicted a reading higher than 62.1. The business activity gauge hit 67.

Also Wednesday, the final read on IHS Markit’s services sector gauge for last month came in at 59.9, essentially unchanged from the flash print, and a marked drop from June.

In short, IHS Markit’s survey suggested that while the US economy is still robust, it’s cooling. Peak growth may have come and gone, if for no other reason that various constraints simply capped the upside.

“With the survey once again bringing signs that capacity is being constrained by a lack of raw materials and labor, inflationary pressures look set to persist in the coming months,” IHS Markit’s Chris Williamson said Wednesday. He did note that despite the likelihood of lingering inflation, it was “encouraging to note that the overall rate of increase of selling prices for goods and services continued to moderate from May’s recent peak.”

On the employment side, the ISM subindex moved back into expansion territory after slipping below the 50 demarcation line in June, a positive development. As for IHS Markit’s survey, the accompanying color cited “staff shortages and difficulties hiring new workers,” which in turn saw the rate of job creation ease for a third consecutive month.

Maybe I’m just feeling especially sarcastic on Wednesday, but monthly PMI anecdotes are now so repetitive that they’ve lost some of their informational value. Updates on the persistence of capacity constraints are useful when it comes to assessing the veracity of the “transitory” narrative, but lately, every “new” PMI feels like clicking refresh on a chart and being disappointed when it hasn’t moved much.

Now that I think about it, perhaps that’s the most useful information of all — it tells us that “transitory” may not be the right adjective anymore.

Maybe “tolerable” is better, as that conveys the notion that something unpleasant is likely to be with us for longer than we initially hoped, and that we’re just going to have to live with it. Kind of like the pandemic.