Businesses are still bedeviled by post-pandemic logjams. There are signs of improvement, and they are enjoying growth, but the upward pressure on prices is still intense, and growing. That was the main readthrough from Thursday’s regular download of monthly data.
The U.S. ISM manufacturing survey dropped very slightly, but remained at high levels, confirming that the peak growth rate is behind us, while also showing that expansion continues at a robust pace. But the reading on prices paid to suppliers rose to touch its highest level since 1979. It has been higher than it is now on only eight months out of the last 50 years:
Crunching further into the details, the index for backlogs dropped slightly, having earlier this year hit its highest level since the ISM started asking the question almost 30 years ago. Backlogs, arguably another form of inflation, remain very high, but it is encouraging that the peak appears to be in:
The ISM also includes a question on whether deliveries are growing faster or slower. The excess of those finding them slower compared to those seeing them speed up dropped slightly, after hitting its highest in May since records began. But again, this number remains elevated. If inflation is to prove truly “transitory” in any meaningful sense, deliveries will need to start accelerating up soon:
What effect has all of this had on inflation expectations in the market? Not a great deal. Bond market breakevens dropped in June, particularly after the Federal Open Market Committee shifted its communications in a more hawkish direction. They have risen over the last two weeks, and climbed a little more after the ISM data came out, but remain at the kind of levels that suggest this burst of inflation will be shortlived, averaging about 2.5% for the next five years, and 2.2% for the five years after that, an outcome with which the Fed would probably be happy:
Now let’s all get ready for non-farm payrolls, before America can retire to spend a weekend overeating in the sun. While you wait for the last big data download of the week, it might be interesting to listen to this podcast from MacroHive, which features an interview with London School of Economics academic and former Bank of England official Charles Goodhart. As distinguished a figure in monetary policy as it gets (he even has a law named after him), Goodhart, with his co-author Manoj Pradhan, has been banging the drum in recent months to make the case that demographic factors could drive a secular rise in inflation. A dose of long-term context might do us all good.