If the Fed is taking economic clues from the Services ISM or from energy, it’s not done hiking. Manufacturing is a different story.
Please consider the August 2023 Services ISM® Report On Business® emphasis mine.
Economic activity in the services sector expanded in August for the eighth consecutive month as the Services PMI® registered 54.5 percent, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 38 of the last 39 months, with the lone contraction in December of last year.
A Services PMI® above 49.9 percent, over time, generally indicates an expansion of the overall economy. Therefore, the August Services PMI® indicates the overall economy is growing for the eighth consecutive month after one month of contraction in December 2022. Nieves says, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for August (54.5 percent) corresponds to a 1.6-percent increase in real gross domestic product (GDP) on an annualized basis.”
The 12 industries reporting an increase in business activity for the month of August — listed in order — are: Accommodation & Food Services; Other Services; Real Estate, Rental & Leasing; Information; Public Administration; Finance & Insurance; Arts, Entertainment & Recreation; Educational Services; Construction; Wholesale Trade; Utilities; and Retail Trade. The three industries reporting a decrease in business activity for the month of August are: Agriculture, Forestry, Fishing & Hunting; Mining; and Professional, Scientific & Technical Services.
Prices paid by services organizations for materials and services increased in August for the 75th consecutive month. The Prices Index registered 58.9 percent, 2.1 percentage points higher than the 56.8 percent recorded in July, indicating a faster rate of increases and a movement from equilibrium. The August reading is the 14th in a row near or below 70 percent (with six straight months below 60 percent), following 10 straight months of readings near or above 80 percent.
Twelve services industries reported an increase in prices paid during the month of August, in the following order: Public Administration; Other Services; Educational Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; Accommodation & Food Services; Construction; Utilities; Management of Companies & Support Services; Information; Finance & Insurance; and Wholesale Trade. The three industries reporting a decrease in prices for August are: Mining; Agriculture, Forestry, Fishing & Hunting; and Transportation & Warehousing.
Diffusion Index Comments
The ISM is a diffusion index, signaling direction not amount. For example a firm hiring 10 workers and a firm laying off 200 workers balances out.
And there is a survival bias and a weighting bias.
Manufacturing ISM Declines 10Straight Months, New Orders Down 12 Months
It’s a tale of two economies, goods vs services.
Manufacturing Prices
- Commodities Up in Price: Bearings; Crude Oil; Diesel Fuel; Electrical Components (10); Natural Gas* (2); Steel* (2); and Steel Products* (2).
- Commodities Down in Price: Aluminum (3); Aluminum Products; Caustic Soda (2); Corrugate Boxes; Natural Gas* (2); Paper (4); Plastic Resins (15); Polypropylene (4); Steel* (5); Steel — Hot Rolled (4); Steel — Scrap; Steel — Stainless (2); Steel Plates; and Steel Products* (3).
- *Indicates both up and down in price.
Relationship to GDP
- Manufacturing: “The past relationship between the Manufacturing PMI® and the overall economy indicates that the August reading (47.6 percent) corresponds to a change of minus-0.4 percent in real gross domestic product (GDP) on an annualized basis.”
- Services: “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for August (54.5 percent) corresponds to a 1.6-percent increase in real gross domestic product (GDP) on an annualized basis.”
US Light Crude Blasts Through Resistance to Highest Level in 10 Months
Yesterday, I noted US Light Crude Blasts Through Resistance to Highest Level in 10 Months
Divergence Between GDP and GDI is Stunning
GDI and the Philadelphia Fed GDPplus both signal recession, GDP doesn’t.
I have been commenting on the GDP/GDI discrepancy for many months. Yesterday, mainstream media finally noticed.
Mainstream Media Finally Wakes Up to the GDP vs GDI Recession Discrepancy
GDP vs GDI Chart Notes
- Real means inflation adjusted
- GDP is Gross Domestic Product
- GDI is Gross Domestic Income
- Real Final Sales is the bottom line assessment of GDP. It excludes inventories which net to zero over time.
GDP and GDI are two measures of the same thing. GDI tends to be more accurate in predicting recessions.
GDI was negative for two consecutive quarters and has been weaker than GDP for four quarters. GDI is now positive, but it is subject to greater revisions than GDP.
A debate is on. I side with GDI and GDPplus. The latter is a blend of GDP and GDI. GDPplus strongly suggests that the economy went into recession in the fourth quarter of 2022.
For discussion, please see Mainstream Media Finally Wakes Up to the GDP vs GDI Recession Discrepancy
We have not seen an economy anything like this one for something like forever.
Mainstream media is catching on, ironically, perhaps after the recession ended. It’s happened before. The NBER once announced a recession after it was over.
If so, we may be headed for a rare double dip. See the above link for details.
“We have not seen an economy anything like this one for something like forever.”
For sure! None of us has seen a similar situation. We had a pandemic with massive fiscal stimulation immediately followed by a major war that even though is not on our shores is affecting global energy markets. The cherry on top is an acceleration of de-globalization that started a few years before and is now a solid part of most developed countries economic software.
Since it is new to us we like to go back into the past to see if others had gone through the same thing and then take their remedies and apply them to now even though history may rhyme but doesn’t repeat so we are are our own in this crisis or more appropriately, series of crises. One central aspect of crises is that the obvious resolutions become apparent only after they have been resolved and that during the crises everybody is pretty much clueless as what to do even though everybody is adamant that only their solutions are the correct ones.
I myself am not under the illusion that I have the answers. At 70 years old my experiences are of a world that no longer exists. Ten years ago I would have said they are relevant. Now I can’t say that. I can say that all those of my age are in the same situation. Our experiences you have whether economic, political or social are of a former world and we really can’t expect that we have the answers. At some point you have to let go. It is true for CEOs and especially true for politicians. Why are they still there when they are so over the hill they they don’t even remember seeing the hump? Whether it is Biden, Trump or any Congressperson who can’ remember what they just read, none of them can’t led us out of this mess so why are they there? If they effectively are just puppets then I would not give much for the survival of the puppet-masters. In that history is firm. The Great Leveler does exist.
Very poignant and wise. I wish more of the “elders” here would bestow more of their life experiences and wisdom than whine about Biden/Trump/Fed.
But I think the problem is very simple, there are 8 billion people on a planet with depleting resources. At some point demand > supply and many really bad things will happen. We are at the start of it.
I still reserve old-codger rights to criticize, denigrate and generally complain about the stupidity of those who are younger than me because in almost all cases I am right and they are wrong.
So long as you get their pronouns right, they’ll allow it.
ancient greeks and chinese wrote complaining about the younger generations born in only 500BC
MIGA-Make Inflation Great Again-Support Biden’s Inflation Seduction Act-Inflation Screws Everybody
It seems there is plenty blame for inflation going around but politicians are going to do whatever they are going to do, the real question to ask is how I am going to profit from that decision/action.
https://www.cnbc.com/2023/09/05/christie-lets-fed-off-the-hook-for-inflation-blames-trump-and-biden.html
“In the end, the cause of this is Joe Biden and his spending and Donald Trump and his spending during his time in the White House,” said Christie, whose presidential primary campaign has been aggressively critical of Trump.
Don’t MAKE me get the kookwhistle out….
ROFLMAO! We need emojis here!
The two year treasury is above 5% now. All aboard the T-Bills money train…Choo! Choo!
Who thinks more rate hikes are coming? The CME odds doesn’t think so but I do.
Put me down for 750 basis points more before they stop
I think you’re joking but you’re not far off. I don’t see anything getting “fixed” until mortgage rates hit over 8% and now I’m thinking 9 or 10% to start cooling everything off.
A smell a big ugly black swan coming though that may upend everything before that…
Not joking, but I have absolutely no empirical data to back it up.
The Fed can’t (and doesn’t want to) stop inflation. If they didn’t want inflation, they wouldn’t set an arbitrary 2% goal. Monetary policy isn’t restrictive. The Fed is still supporting the banks with interest paid on reserves as well as the “special” lending program that allows them to borrow at face value rather than market value of underwater bonds.
Government is running massive deficits and pursuing inflationary policies(energy, food production, regulations). Most likely path is stagflation.
agree, except stagflation, coined decades ago, means high unemployment rates. with demographic silent and boomer generations running towards their dirt naps and assisted living on deck batter box, unemployment doesn’t seem like we will get much. us geezers north of 50 need services from dentists to maids and plumbers………….