US Services Economy "Loses Momentum" As Inflationary Pressure Surges

Tyler Durden's picture

While better than expectations, Markit Services PMI dropped to 3-month lows at 53.9 in December as input prices soared at the fastest rate since July 2015 "which could feed through to reduced consumption." ISM Services was flat at 57.2 in December, holding at 14-month highs from November, with employment declining despite rising new orders.

The divergence continues but both surveys showed meomentum fading...

Inflationary pressures are building...

Input cost inflation accelerated in December and was the joint-fastest since July 2015. Reports from survey respondents suggested that suppliers had passed on higher fuel and raw material prices.


A number of firms also pointed to increased food costs. Latest data indicated a solid rise in average prices charged by service providers and the rate of inflation was the steepest recorded since June 2015.

ISM Breakdown - note decline in employment and new export orders (strong dollar) as well as surging 'Prices Paid'


ISM Respondents:

"New business slowed a little bit, but we are still growing. The key headwinds are holiday season and capex [capital expenditures] tightening due to end of year budgets." (Construction)


"Steady with optimism." (Finance & Insurance)


"Business is the same and at the same volumes as last month." (Health Care & Social Assistance)


"Very busy end to the 4th Qtr due to customers' year-end spending boost." (Mining)


"Activity seems to be increasing as more potential client inquiries have been coming in." (Professional, Scientific & Technical Services)


"Labor, especially construction labor and construction subcontractors, continue to be in short supply." (Public Administration)


"Sales increasing due to [the] holidays." (Retail Trade)


"Distribution of finished goods ahead of last year and forecasts in all channels. E-commerce [has the] strongest growth." (Transportation & Warehousing)

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

The US economy ended 2016 on a solid footing on which sustained growth looks set to be achieved in the coming year.


“Although losing a little momentum in December, the pace of business activity growth in the services and manufacturing sectors combined remained one of the strongest seen over the past year.


“The surveys signal GDP annualized growth of approximately 2.0% in the fourth quarter, a pace which we expect to be met – if not slightly exceeded – through 2017.


“The upturn also continues to deliver an impressive rate of job creation, especially given the current high level of employment – largely reflecting improved confidence about the economic outlook.


“The only real blot on the copybook was that prices charged showed the steepest rise for one and a half years, which could feed through to reduced consumption.


“The upturn in price pressures alongside the robust economic growth signalled will also add conviction to the belief that, unlike 2015 and 2016, this year will see that Fed deliver more than one rate hike, with three quarter point interest rate rises looking the most likely scenario.”

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LawsofPhysics's picture

Wait what? The Fed and their government lackys keep telling me that there is "no inflation"...


tick tock motherfuckers...

LawsofPhysics's picture

not quite.  Sorry, but there is no increase in wages, period, and this is NOT the 70's, not by a long shot.  Much closer to 1929 from an eCONomic perspective.

I am Jobe's picture

American Serive Economy- Giving Blow Jobs and Licking Pussies.

Dr. Engali's picture

This shit cracks me  up how obvious it is that they are setting Trump up for a fall. Read a Reuters headline last night that said "New car sales is another indicator that Trump is inheriting a strong economy".  

two hoots's picture

Those with  72 month payments are gonna regret that real soon.   sometimes my dark side thinks many are buying this stuff hoping to get the debt pile so high the gov will be forced to forgive their loans, all these personal loans.  they may be right?  Has everyone caught on  that it works to trade paper or promises for real material items?

Dg4884's picture

Oh... it's ALL going to explode, no question.  Concern is can I get enough ammo delivered without raising any red flags!

ne14truth's picture

its easy, go get a pre paid visa gift card for the amount you need to spend..order it online..have it shipped to your next door neighboors house, when is shows up run over there and grab your box......nothing to trace back to you....simple

two hoots's picture

Inflation will be the priority that drives the Fed to action.  Stuff is gonna cost more and savers will have to cut savings to pay for stuff, so much for the benefit of increased interest?   There is no end to chasing this economic stuff.   You can waste good years waiting, just enjoy life as it comes, day to day.


jamesmmu's picture

The recent increase in PMI around the world could ended up to be bad news when sales not performing. and its happening now, the biggest comsuming country, US is sluggish in sales. Giant retailer, Macy just issued sale warning, what could happen next?

Kefeer's picture

I'd say Sears will finally go bankrupt this year and either sell all their stores or be bought out by some other entity that will eventually fail.  Many retail "giants" will be laying off and closing stores as the "Holiday Sales" will show to be a bust because people are tapped-out and maxed-out. 


The fruits of the Obama Marxist business model of solving inequality, where everyone needs to be at the bottom and excellence is not a desired attribute.

nakki's picture

Didn't hear about real inflation for the last 6 years. Rents, food, tuition, stocks, HEALTHCARE but suddenly inflation is headline news. 

Its not wage growth and gasoline is still 40% cheaper than it was 9 years ago and 30% cheaper than 2014, so why all of a sudden are we hearing about inflation? 

No doubt in my mind that inflation was running way above government numbers for the last decade but all if a sudden the FED is worrying about it now.

Sounds like a perfect set up to raise rates, killing the economy and pull the rug on stocks creating the next crisis and QE4.


Kefeer's picture

This type of headline will become part of the MSM narrative as it will be used against the new administration. 

Recall that Obama blamed Bush (puppet), and rightly so, for many years.  I believe he even blamed Bush during the 2012 election, which took the "blame game" to a new level.  However, Obama will not own it by MSM standards, which there is only one standard, the Marxist standard.

ne14truth's picture

service economy seems like a weak foundation to build a country on. So our whole economy relys on people who mow lawns, clean houses, walk other peoples dogs? We will certainly not be picking up and exports from this type of work. It seems a much stronger economy if you use your labor to make a product that can be sold, tangible, hard asset of some kind. Then you take your pay and buy other tangible objects, it creates a circle, circles have no end point....if you use your labor to mow a lawn, you probably do not pay anyone to clean your house or mow your lawn so it is not a circle, it has an end point, it is unbalanced at least.