Stagflation Shock: ISM Shows Input Costs Soaring At Fastest Since 2011

Input cost inflation is soaring at its highest since September 2014 according to Markit's US Manufacturing PMI survey (which surged in January to 55.0 - slightly less than the 55.1 prelim print - the highest since March 2015). New orders accelerated but employment slipped and despite the surge in costs, factory gate charges increased only modestly. Despite disappointing 'hard' data from durable goods, ISM survey data confirms the bounce (highest since 2014) but Prices Paid spiked to its highest since 2011 (and export orders dropped).

Hard vs Soft data... ISM CEO Holcomb summed it all up perfectly: ISM GAIN DRIVEN BY HOPES, EXPECTATIONS UNDER TRUMP


Prices Paid are soaring... (and export orders dropping)

ISM notes that...

  • Commodities Down in Price: None.
  • Commodities in Short Supply: None.

So, to be clear, everything is up in price, but there is no shortage of anything.

New Orders were stagnant...


And the full breakdown...


Almost every ISM respondent is exuberant...

  • “Demand very steady to start the year.” (Chemical Products)

  • “January revenue target slightly lower following a big December shipment month.” (Computer & Electronic Products)

  • “Strong start to the new year. Production is increasing and we are adding capacity.” (Plastics & Rubber Products)

  • “Business looks stronger moving into the first quarter of 2017.” (Primary Metals)

  • “Economic outlook remains stable and no current effects of geopolitical changes appear to be penetrating market conditions.” (Food, Beverage & Tobacco Products)

  • “Sales bookings are exceeding expectations. We are starting to see supply shortages in hot rolled steel due to the curtailment of imports.” (Machinery)

  • “Year starting on pace with Q4 2016.” (Transportation Equipment)

  • “Business conditions are good, demand is generally increasing.” (Miscellaneous Manufacturing)

  • “Conditions and outlook remain positive. Raw material prices are stable resulting in stable margins. Asset utilization remains high.” (Petroleum & Coal Products)

  • “Steady demand from automotive.” (Fabricated Metal Products)

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

The US manufacturing sector has started 2017 with strong momentum. Despite exports being subdued by the strong dollar, order books are growing at the fastest pace for over two years on the back of improved domestic demand.


“With optimism about the year ahead at the highest since last March, the outlook has also brightened.


“Production is consequently growing at the strongest rate for almost two years and inventories are rising at a rate not seen for nearly a decade as firms respond to higher demand, suggesting the goods-producing sector will make a decent contribution to first quarter GDP.


“With input costs also rising at the steepest rate for over two years, and hiring sustained at an encouragingly solid pace as firms expand capacity, all of the survey indicators point to the Fed hiking interest rates again soon.”