US Manufacturing Surveys Signal Potential Stagflation

In the latest economic report, the United States is experiencing a mixed bag of results, with manufacturing survey data offering some glimmers of hope amidst broader economic challenges.

According to the recently released data, the S&P Global’s PMI Manufacturing index made a noteworthy jump from 47.9 in August to 49.8 in September, marking the highest reading since April. However, it’s important to note that this figure remains below the critical threshold of 50, signifying that the manufacturing sector is still in a state of decline.

This marks the fifth consecutive month of reduction and the tenth out of the last eleven months in which manufacturing has remained below the 50 mark. Meanwhile, the ISM Manufacturing index also saw an uptick, rising to 49.0 from 47.6, surpassing expectations set at 47.9.

Despite this improvement, the ISM index continues to linger below the 50-point threshold, marking the tenth consecutive month of decline. Needless to say, the divergence between ‘soft’ survey data and ‘har’’ economic indicators is notable.

While both surveys share the same headline result of being below 50, a closer examination reveals stark differences beneath the surface. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented on the recent data, noting that September brought a welcomed stabilization in manufacturing.

Factors contributing to this equalization included an uptick in employment and improved supply availability, enabling factories to address backlogs of orders. However, the pace of production growth remains sluggish due to a decline in new orders, particularly from weakened export markets.

Despite the promising signs, there are concerns on the inflation front. Costs for manufacturers increased at their fastest rate in five months, largely driven by rising oil prices. These higher costs are translating into increased prices for customers, which could potentially reignite inflationary pressures.

In summary, the PMI data indicates higher prices and slower production growth, pointing toward potential stagflation — a situation characterized by inflation and economic stagnation. In contrast, the ISM data suggests lower prices and a quicker pace of orders.

As our economic landscape becomes increasingly intricate, we witness a delicate balancing act. While promising manufacturing data gives us hope, it must contend with the enduring challenges and the mounting pressure of inflation.