Stagflation Red Flags Fly As Orders/Output Slow, Prices Spike

Following weak EU and Asian (and Canada) PMIs, US also disappointed with Markit Manufacturing dropping to 55.3 in February flashing signs of stagflation (prices rising at 4 yr highs as output growth slows). While ISM showed the same stagflationary signs, the headline soared to its highest since May 2004.

Markit Manufacturing slipped back below Services PMI but ISM exploded higher to its highest since May 2004??!!

Under the covers, ISM is less rosy... New Orders slowed, production slowed, and prices paid soared to its highest since May 2011...

Stagflation signs abound...

Growth of manufacturing output remained solid in February, despite easing slightly to a three-month low.

Inflationary pressures intensified in February. Input prices increased at the fastest pace since December 2012, reportedly driven by supplier shortages and greater global demand for inputs. Supply chain delays were among the highest seen over the past three years. Where possible, panellists reported that costs were passed onto clients through higher charges. Factory gate price inflation accelerated to the fastest for over four years.

Commenting on the final February PMI data, Chris Williamson, Chief Business Economist at IHS Markit, glossed over the slowdown, remaining hopeful of future rebounds...

“US factories are enjoying one of the best growth spells seen since 2014, boding well for the sector to make a solid contribution to GDP in the first quarter.

“The survey’s output index readings for the first two months of 2018 are indicative of the sector growing at an annualised rate of just under 3%.

“The most encouraging news was another surge in new order inflows, which helped boost optimism about the year ahead and drive further widespread job gains. Manufacturers are clearly in expansion mode, enjoying robust demand from home alongside rising export orders.

“Capacity is still being stretched, however, as indicated by widespread supply chain delays and the build-up of uncompleted orders at factories. Demand, in other words, is running ahead of supply, meaning pricing power is improving. Factory selling prices are consequently rising at the steepest rate for four years.

Finally we note that the global growth narrative appears to be losing its credibility rather quickly...