The average for the "flash" (provisional) PMIs for the Big 5 rose sharply in August. The biggest rises were in the USA and India. (The Big 5 are: the USA, the UK, the Euro Area, Japan and India, and they together represent 53% of world GDP, using PPP GDP. )
I confess I am surprised that the US average PMI rose so much.
S&P Global comments:
“Companies across both manufacturing and services are reporting stronger demand conditions, but are struggling to meet sales growth, causing backlogs of work to rise at a pace not seen since the pandemic-related capacity constraints recorded in early 2022. Stock building of finished goods has also risen at a survey record pace, linked in part to worries over future supply conditions.
“While this upturn in demand has fueled a surge in hiring, it has also bolstered firms’ pricing power. Companies have consequently passed tariff-related cost increases through to customers in increasing numbers, indicating that inflation pressures are now at their highest for three years.
“The resulting rise in selling prices for goods and services suggests that consumer price inflation will rise further above the Fed’s 2% target in the coming months. Indeed, combined with the upturn in business activity and hiring, the rise in prices signaled by the survey puts the PMI data more into rate hiking, rather than cutting, territory according to the historical relationship between these economic indicators and FOMC policy changes.”
Interesting times. The ISM indices, an alternative measure to the PMI fell last month, whereas the PMI rose (the data were revised up).
Trump wants to take control of the Fed, to ram through interest rate cuts. But if rates are cut as inflation is rising, instead of being a transitory effect of higher prices, inflation will become embedded in the system, and that will be bad for share and bond markets.
The ramifications are too complicated to explain in a short note like this, but I have to say, I remain very cautious about US and global share markets.
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