U.S. service sector activity that powers two-thirds of economic activity (above graph) is surging more than ever, according to the Institute of Supply Management non-manufacturing survey. It is growing per 58.3 percent of managers surveyed, with the index for employment and new orders even higher. New orders rose 4 points to 60.1 percent, and production activity also edged higher.
“In March, the Services PMI® registered 58.3 percent, a 1.8-percentage point increase compared to the February reading of 56.5 percent," said Anthony Neeves, Chair of the Institute for Supply Management®. "The 12-month average is 62.3percent, which reflects consistently strong growth in the services sector. The March reading indicates the services sector grew for the 22nd consecutive month after two months of contraction and 122 months of growth before that. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates the services sector is generally contracting.”
So this doesn’t look like impending stagflation, the wage-price spiral that happened in the 1970s and pushed inflation to record highs, while growth came to a standstill.
Pundits and some banks that forecast a future wage-price spiral seem to have forgotten that it took consecutive Arab (OPEC) oil embargoes in the 1970s causing gasoline shortages and long lines at gas stations for almost a decade to make that happen.
Whereas the Ukraine war and its concomitant sanctions are less than two months old. Why should we even be worrying about prolonged inflation, and what the Fed might do to tame it, when we don’t know whether this war will last for months, or years, and what will be needed to win it?
Predictions of a looming recession are premature, so say the least. Both the service and manufacturing sectors are booming, while supply chains are struggling to catch up and replenish inventories.
This is while the jobs market is red hot with more returning to work. New U.S. jobless claims matched a 54-year low of 166,000 in early April, for instance — the second lowest reading in history— during a period of remarkably strong hiring and the lowest layoffs on record.
The ISM’s service sector employment index increased to 54% from 48.5%. Businesses got no relief from inflation, however. The prices-paid index moved up to 83.8% from 83.1%, just a tick below a record high.
What will help to tame the inflation tiger? More workers returning to work will increase production, replenishing inventories. And governments will be increasing their spending, as well, due to the Ukraine war. This will stimulate further production increases.
MarketWatch columnist Jeffry Bartash maintains what was called the “Great Resignation” is over, a time since the pandemic when workers were reluctant to return to work.
“To be sure, Americans have been saying “I quit” in record numbers,” said Bartash. “Almost 57 million people left jobs — many more than once — in the 14-month period from January 2021 to February 2022. That’s a 25% spike vs. a similar time span before the pandemic.”
The hiring wave began more than a year ago. The U.S. added 431,000 new jobs in March, the government said last week, extending a streak of large job gains going back to the start of 2021. The unemployment rate also sank to 3.6 percent last month — just a tick above a 53-year-low — from nearly 15 percent just two years ago.
“All of the hiring took place against the backdrop of high covid cases and the reluctance of millions of formerly employed people to return to the labor market. Hiring might have taken place even faster, economists say, if the pandemic had petered out and generous government unemployment benefits were ended sooner,” continued Bartash.
So maybe we can endure a bit more inflation if the red hot demand that’s causing it is bringing more people into the workforce and helping Ukraine to win its war?
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
No comments:
Post a Comment