The May S&P Global US manufacturing PMI fell back below 50 at 48.5, not surprisingly considering the regional surveys we’ve seen so far, vs 50.2 in April. It’s now in contraction for the 6th month in the past 7. Services though improved further to 55.1 from 53.6. Combining the two puts the composite index at 54.5 vs 53.4 in April.
The bottom line from S&P Global was very similar to what was seen in Europe, “While service sector companies are enjoying a surge in post-pandemic demand, especially for travel and leisure, manufacturers are struggling with over-filled warehouses and a dearth of new orders as spending is diverted from goods to services.” Employment for both improved as did optimism for the coming quarters.
With respect to inflation, on services “Although easing, rates of increase in input prices and output charges were faster than their respective series averages. Companies often stated that greater wage bills drove inflation, as firms sought to pass-through higher costs burdens to clients.”
As to what manufacturers said on pricing, “There was a notable turnaround in inflationary pressures at manufacturers midway through the 2nd quarter, as input prices fell for the first time since May 2020…Lower cost burdens were reflected in output charges, which increased at the slowest rate since July 2020.”
My bottom line, there is nothing easy about trying to figure out what’s going on with the US economy right now but I’ll try. Manufacturing is in a recession as is the housing industry in terms of the pace of transactions and all the ancillary impacts that has on furniture, building supplies, etc…The US consumer is mostly spending money on restaurants/bars/travel and food/beauty/drug stores and less so on everything else. Capital spending is going to follow the trend of earnings and right now that is down. Bank lending is shrinking and every single business, household, and real estate owner that has debt coming due each month this year and next will be faced with sharply higher refinancing costs. But inflation will be further moderating and likely the Fed is done raising rates. The US government is still spending liken drunken sailors, thought the rate of increase should slow in the next yr or two upon a debt deal.
New home sales were about as expected when we include the March downward revision. Smoothing out the monthly volatility has the 3 month average at 657k vs the 6 month average of 640k and the 12 month average of 613k. We know that in terms of finding a home to buy, new ones are becoming more available than existing ones. Overall though, the pace of housing turnover remains muted for obvious reasons of affordability and the lack of existing homes not being fully offset by new builds.
The May Richmond manufacturing index joins NY and Philly in seeing contraction, again. Its index fell to -15 from -10 and that was double the estimate. The Richmond Fed said simply, “manufacturing firms reported deterioration in business conditions in May.”
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