- by New Deal democrat
To briefly reiterate, although the government shutdown ended over two months ago, much of the official monthly data - including on sales and spending - is stale, dating to November and even earlier. So the most current measures of these are the ISM manufacturing and non-manufacturing reports, due next week, and the regional Fed banks’ manufacturing and services indexes. While certainly not perfect, in the aggregate they at least sketch on outline of where the economy has been going in the past month.
On Wednesday I looked at the goods producing sector. Today let’s look at the Services sector, which comprises about 75% of the whole economy; and then the economically weighted average of manufacturing and services together.
Below are the January values for important components of the five regional Fed services indexes. The month over month changes are in parentheses, showing momentum (the 2nd derivative), followed by the absolute diffusion values. The final number is the average change and absolute number for all 5 together. The chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas:
Regional Fed: NY. PHL. RVA. KC. TX. Avg
Headline: (+3.9) -16.1; (+12.6) -4.2; (+5) -6; (-1) 2; (+5.0) 2.7; (+5.1) -4.3
Cap Ex (+0.8) -6.1; (-5.5) 5.1; (+4) -5; (+9) 18; (-16.8) 6.8; (-8.5) 3.8
Prices Paid (-8.2) 63.9; (-5.8) 34.5; (-1.8) 4.3; (+5) 39; (-5.1) 26.2; (-3.2) 32.6
Prices Rec’d (-2.9) 27.6; (-5.8) 13.2; (+0.2) 3.4; (+11) 21; ( 0 ) 7.9; (+0.5) 14.6
Wages (+6.3) 30.0; (-8.9) 37.2; (+3) 20; (+11) 24; (+2.5) 13.5; (+2.8) 24.9
Employment (+1.9) -5.5; (+0.1) 9.7; ( 0 ) 5; (+3) -3; (+1.7) 0.9; (+) 1.3
With one exception, the trends in December continued in January. Headline business conditions continued to indicate contraction, but at a decelerating rate. If the trend of the last few months continues, this will turn positive in February or March. Meanwhile both prices paid and prices received continued to show broad increases, the former more than the latter. Wages also continued to show broad growth, although they may be growing too fast for the underlying business conditions. This suggests sustained services inflation will continue, and even perhaps amplify in the months ahead.
By contrast, employment continued to be generally flat. The only big change was in CapEx spending, which had been growing strongly, weakening sharply, although still positive.
On Wednesday I reported that the headline for the manufacturing index was +2.8. New Orders were +5.4. Prices paid were +35.6, and prices received were +16.9. Wage growth was +16, and Employment was a meager +1. Economically weighting the two indexes at 25% for manufacturing and 75% for services gives us the following overview of the entire economy:
Headline: 2.5
CapEx/New Orders: 4.2
Prices paid: 33.4
Prices received: 15.2
Wages: 22.7
Employment: 1.3
The economically weighted average of all the components is positive, indicating increases or expansion. The two price components and wages all indicate continuing strong inflationary pressure, likely due in part to tariffs, US$ weakness, and/or a move to safety in precious metals. Only some of which - but a significant amount - is being passed on to consumers. In contrast the business conditions and new orders/CapEx subindexes suggest very tepid expansion.
Or, in short, more stagflation.
We’ll see if the ISM indexes confirm or diverge from the regional Fed averages next week.
UPDATE: This morning’s PPI report for December, showing a monthly increase of 0.5% for final demand prices (black), similarly suggests stagflation - although in fairness commodity prices (red) declined -0.3%. On a YoY basis, as indicated in the graph linked to below, both of these as well as CPI are converging on the 3% YoY marker:
