Flash May PMI Report Raises Fears of Stagflation
Input and output price pressures climb in May, while job creation declines. That’s not a good mix.
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We flagged the May Flash PMI report from S&P Global in our opening comments as one to watch closely. The report is out, and it was a tale of two different sectors with manufacturing faring better than the much larger service part of the economy. Both parts of the economy reported “subdued” order growth with S&P’s Chief Business Economist Chris Willamson sharing the following:
On average, over the past three months order book growth has slowed to its weakest for two years, and a boost from precautionary stock building due to concerns over further price hikes and supply delays will not last forever.
Meanwhile both manufacturing and service sector respondents are passing on higher costs in the form of higher selling prices, pointing to continued inflation pressures ahead for the May consumer price index and producer price index data.
Add in S&P’s initial findings that job creation fell in May (more below), and the report raises the concern the domestic economy is cooling while inflation looks to rise further. What we saw will keep us owners of Costco (COST), TJX (TJX), and Amazon (AMZN) shares. We’ll look for validation in those findings when the Institute for Supply Management publishes its May manufacturing and service PMI reports in early June.
Here’s more color from S&P’s May Flash PMI report:
May Job Creation
“… employment fell in May for the second time in the past three months, the rate of job losses reaching the highest since August 2024 due to growing concerns over rising costs and deteriorating demand conditions. However, whereas service sector jobs were reduced at the second-fastest pace seen since May 2020 (surpassed only by April 2024), manufacturing payrolls showed the largest rise for 11 months as factories raised headcounts to meet the recent upturn in orders.”
Supply Chain Woes
“Factories reported the greatest lengthening of supplier delivery times since August 2022. Lead-times have now lengthened continually over the past nine months, with factories reporting that war-related shipping disruptions and stock piling have exacerbated existing tariff-related supply constraints.”
Inflation
Manufacturing input costs registered their largest monthly increase since June 2022. While the rise in services costs was muted compared to manufacturing, it was nonetheless the steepest recorded for a year. Average prices charged for goods and services rose in May at the fastest rate since August 2022 amid the growing supply scarcities and jump in costs. Goods prices showed a particularly marked rise, the rate of increase hitting the highest since September 2022, but service sector selling price inflation also accelerated to a ten-month high and was one of the sharpest rates seen over the past four years.
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At the time of publication, TheStreet Pro Portfolio was long AMZN, COST, and TJX.
