The good news is, the US economy is still humming along.
That’s also the bad news if you think the Fed could use an excuse to lean dovish in the interest of arresting an ongoing bank panic.
Preliminary PMIs for March released Friday suggested business activity across the world’s largest economy was the briskest in nearly a year in early March.
The flash read on S&P Global’s services sector gauge was 53.8, easily ahead of every estimate and the highest since April of 2022.
New business was the most robust since May, and at 52, the employment gauge on the services side is in expansion territory and the highest since September.
Services sector firms reported “stronger demand conditions” and “greater client activity.” Unfortunately, the color that accompanied the release nodded strongly in the direction of entrenched inflation.
Input prices “rose markedly” for services firms, even as the rate of cost inflation was the second-softest since October of 2020. In bad news for the Fed’s inflation fight, S&P Global said robust demand bolstered firms’ pricing power. Selling prices rose at the sharpest pace in five months, while “pressure on capacity drove job creation, as service sector employment rose at the steepest rate since last September.”
With apologies: That’s a wage-price spiral. It just is. If it isn’t, then the term has no meaning.
The manufacturing print, at 49.3, was much better than expected, even as it still indicated a slight contraction. On the factory side, at least, price pressures are still moderating. “Rates of increase in input costs and output charges slowed as firms noted less marked supplier price hikes and moderations in some raw material costs,” S&P Global remarked.
Ultimately, the services PMI suggested inflation is percolating in the US economy, where demand is robust, leading to more pricing power for businesses.
The composite gauge is consistent with annualized GDP growth of nearly 2%. That’s not cool enough to curb inflation running nearly triple the Fed’s target. It’s much brisker than the growth projections for 2023 and 2024 from the new SEP.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, described activity in the services sector as “encouraging.” Demand, he said Friday, is “blossoming as we enter spring.”
Plainly, that could change depending on how the bank crisis evolves, something Williamson mentioned, but the problem is inflation. As discussed here on Thursday, you can blame corporate greed or you can blame too-hot wage growth depending on your political persusasion, but the truth is: It’s both.
As Williamson put it, “The inflationary upturn is now being led by stronger service sector price increases, linked largely to faster wage growth.”
Sorry these numbers are old news. Markets are strongly indicating inflation is not going to be the main problem as of mid March
I’ll say one thing for you: I admire your persistence. Generally speaking, you can only “go down with the ship” once. But you’ve gone down with the “Team Transitory” ship on so many occasions over the past year I’ve lost count. You’ve managed to redefine an idiom!
Well, bonds are saying we will see/have a Minsky moment in the next 2-6 weeks. Equities are excited about the new “temporary” QE from the recent bank bailout. Large cap tech is in full bubble mode again. These contradicting factors cannot continue on the current path. Something will give.
Unless the debt ceiling debacle moves to the fore, I feel like the banking crisis that wasn’t narrative wins out. To me I expect equities down over the next month then an mini bull “relief rally” through the end of summer.
I also fully the believe the relief rally will be nonsensical and likely end badly for most.
Hpoium – more than likely you will be proven right.
But I have this bad feeling reading through many comments here that risks are overstated and all will turn out just fine. That’s probably a high probability outcome.
But that’s eerily reminiscent of late 2008-early 2009 calls to that effect. Things like “there has never been a nationwide housing price decline, ever.” Or the late Tobias Lefkowich’s January 2009 call that bank stocks, particularly BOA, were the pick of the year, thanks to their fat dividend yields.
Again i yell into the void: where is “hipster antitrust”? For all their noise they’ve done nothing. If larger firms were broken up there’d be less ability for firms to unilaterally raise prices.
And yet, UST market seems to interpret this all like that scene in dumb and dumber where Jim Carry reacts to his rejected advances with “soooo, your saying there is a chance (of a pause/pivot)”. The general media outlets also seem to be focusing on a ‘obvious 25-50 cut by eoy, on Fed hint, here look at my tea leafs..’
I wonder if residential rental turnover rates have changed over the decades, and if that will affect the lag from private rental asking prices to CPI housing data.
From some brief searching, it looks like apartment turnover rate in the late 2000s was low 70s% while in the late 2010s it had fallen to mid 50s%. Lower turnover should slow transmission of lower asking prices to CPI.