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Services Surveys Scream Stagflation In August As Wages Spike


As ‘hard’ data has collapsed in recent months, so ‘soft’ survey data has finally given up hope of more stimmies and is rapidly falling back in line, not helped at all by the renewed fearmongering over ‘Delta’ and now ‘Mu’ COVID variants. August showed that trend continued to accelerate as Service sector surveys slumped.

Markit’s Manufacturing PMI slid in August, but the Services sector really slumped to its lowest since Dec 2020

Source: Bloomberg

ISM’s Services survey rose in July (against expectations), but tumbled back down in August (from 64.1 to 61.7)…

Source: Bloomberg

Inflationary pressures across the private sector remained elevated midway through the third quarter, as input costs rose substantially despite a cooling in the rate of increase at service providers. Specifically, higher input prices were often linked to hikes in supplier costs and wage bills amid labour and product shortages.

ISM data confirmed new orders and employment weakness…

“The tight labor market, materials shortages, inflation and logistics issues continue to cause capacity constraints,” says ISM’s Nieves.

The US Composite index fell to 55.4, in line with UK and below Europe…

Source: Bloomberg

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

Growth slowed sharply in the US service sector in August, joining the manufacturing sector in reporting a marked cooling in demand and encountering growing problems finding staff and supplies. Jobs growth almost stalled among the surveyed companies in August and supplier lead times are lengthening at a near record rate.

“While the resulting overall pace of economic growth signalled is the weakest seen so far this year, backlogs of uncompleted work are rising at a rate unprecedented in at least 12 years, underscoring how supply and labor shortages are putting the brakes on the recovery. The inevitable upshot is higher prices, with firms’ input costs and selling prices rising at increased rates again in August, continuing the steepest period of price growth yet recorded by the survey by a wide margin.

Encouragement comes from a rise in business expectations about the year ahead, though optimism in the service sector in particular remains off the high seen in the second quarter, to a large extent reflecting concerns over the spread of the Delta variant.”

The stagflation signals – soaring inflation, stalling production, stagnant employment – remain top of mind for many…

Source: Bloomberg

Taper off?



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