US Manufacturing Surveys Scream Stagflation As "Expectations Have Moderated"

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by Tyler Durden
Tuesday, Jun 01, 2021 - 10:05 AM

With 'hard' data serially disappointing over-exuberant expectations for the last few months, 'soft' surveys continue to offer 'hope' (albeit mixed) for recovery-hyping equity bulls that the vast gap between the market and economic reality will somehow be filled.  After ISM's surprise tumble last month (and PMI's ongoing rise in flash data), the final data for May was expected to show marginal improvements for both manufacturing surveys.

  • Markit US Manufacturing PMI beat expectations, rising from 60.5 for April and from 61.5 flash for May to a final 62.1 for May - a record high.

  • ISM Manufacturing beat expectations, rising from 60.7 in April and expectations of 61.0 for May to 61.2.

Source: Bloomberg

Markit notes that the degree of optimism remained upbeat on average, but dipped to a seven-month low amid concerns regarding future supply flows.

And that lack of optimism is clear in the ISM employment data which tumbled...

Source: Bloomberg

Survey respondents:

  • “The continued global supply chain tightness and raw material shortages from the Gulf (winter storms) make it less likely that any business can recover this year. Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?” [Nonmetallic Mineral Products]

  • “Supplier performance — deliveries, quality, it’s all suffering. Demand is high, and we are struggling to find employees to help us keep up.” [Computer & Electronic Products]

  • “Changes in currency exchange rates favorably contributed to our quarterly performance.

  • Continued strong consumer demand for our high-quality products also provided increased sales.” [Chemical Products]

  • “Ongoing component shortages are driving dual sourcing and longer-term supply plans to be implemented.” [Transportation Equipment]

  • “Difficulty finding workers at the factory and warehouse level is not only impacting our production, but suppliers’ as well: Spot shortages and delays are common due to an inability to staff lines. Delays at the port continue to strain inventory levels.” [Food, Beverage & Tobacco Products]

  • “[A] lack of qualified candidates to fill both open office and shop positions is having a negative impact on production throughput. Challenges mounting for meeting delivery dates to customers due to material and services shortages and protracted lead times. This situation does not look to improve until possibly the fourth quarter of 2021 or beyond.” [Fabricated Metal Products]

  • “Labor shortages impacting internal and supplier production. Logistics performance is terrible.” [Electrical Equipment, Appliances & Components]

  • “Business is good, but labor and raw materials are becoming very problematic, driving increases in costs.” [Furniture & Related Products]

  • “Seeing a high demand and backlog of orders.” [Plastics & Rubber Products]

  • “Very busy, but still experiencing labor shortages.” [Primary Metals]

Chris Williamson, Chief Business Economist at IHS Markit said:

“US manufacturers are enjoying a bumper second quarter, with the PMI hitting a new high for the second month running in May. Inflows of new orders are surging at a rate unsurpassed in 14 years of survey history, buoyed by reviving domestic demand and record export sales as economies reopen from COVID-19 restrictions. However, elevated levels of other survey indicators are less welcome: prices charged by manufacturers are also rising at an unprecedented rate, linked to soaring input costs and unparalleled capacity constraints.

“Not only is operating capacity being curbed by record supply chain delays so far in the second quarter, but firms have also been increasingly unable to hire sufficient staff. Hence backlogs of work are building up at an unprecedented rate, as firms struggle to meet demand.

However, there is some darker clouds on the horizon, as Williamson notes:

“These backlogs of orders should support further production growth in the next few months, adding to signs of impressive economic expansion over the summer. But manufacturers’ expectations further ahead have moderated, hinting that the growth rate is peaking, linked to worries about capacity limits being reached, rising prices hitting demand and a peaking of stimulus measures.”

Which leaves us with a clear picture of stagflation...

Source: Bloomberg

The Fed is cornered - as markets start to face up to the reality of waning free money, Powell and his pals can't ease any more amid "unprecedented" crushing of Americans' living standards by the soaring inflation being seen everywhere.