Stagflation Looms As PMI Shows Surging Costs And Sinking Growth

Following Manufacturing's drop, the US Services sector PMI disappointed in November, falling to its lowest since June (as business confidence tumbled to its weakest since February). Average selling prices soared as growth slumped setting the scene for a stagflationary future. ISM Services confirmed this weakness, tumbling to 3-month lows.

Of course, between Markit and ISM, there has been at least something to hang some hope on but in November they appeared to line up with PMI Manufacturing and Services (5mo low) sinking (upper pane) and ISM Manufacturing (4mo low) and Services (3mo low) also tumbled...


Under the covers, ISM shows busines activity, new orders, and employment weaker...

Non-seaonally-adjusted new orders tumbled...

But the respondents appear confident still...but are showing some signs that the trajectory is slowing...

  • "Domestic business is strong, with positive growth indicators for 2018 from both internal sources and client feedback." (Management of Companies & Support Services)
  • "Construction labor continues to be constrained in the West." (Construction)
  • "Steady; no material changes." (Finance & Insurance)
  • "We continue to struggle with understanding the [potential] changes to the Affordable Care Act, and are trying to be flexible in how we respond. Also, Hurricane Maria has affected some of our pharmaceutical supplies." (Health Care & Social Assistance)
  • "Mixed bag of goods for November 2017. Typical seasonal increases for specific braising cuts of beef as the holidays approach. Some volatility on produce items such as brussel sprouts. Expect cream to spike due to holiday season." (Accommodation & Food Services)
  • "Business seems to be leveling off. Attribute this to the holiday season that is approaching." (Professional, Scientific & Technical Services)
  • "Business is strong, but not as strong as Q3." (Retail Trade)
  • "Bookings would suggest a strong run to the end of the year." (Wholesale Trade)

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

The slowest growth of service sector business activity since June, alongside a slight dip in the pace of manufacturing expansion, means the November PMI surveys registered a modest cooling in the overall rate of business growth.


“The surveys’ employment indices are meanwhile pointing to solid non-farm payroll growth of circa 200,000 as companies continue to take on staff in encouraging numbers to meet rising order books.


Disappointingly, optimism about the year ahead deteriorated as companies grew increasingly cautious about the outlook for 2018, suggesting risk aversion may start to rise, which could hit hiring and investment. However, for now, businesses generally remain in expansion mode and the upturn shows few signs of losing momentum to any significant extent.


“In terms of prices, the upturn continues to show signs of gradually feeding through to higher inflationary pressure. Average selling prices for goods and services showed one of the largest increases recorded over the past four years, linked to rising cost pressures."

Williamson concludes, mid-way through the fourth quarter, the surveys are still pointing to a reasonable GDP growth rate of approximately 2.5%...