U.S. SERVICES PMI: Steepest expansion in business activity since July 2014, but costs rise at record rate
February PMI data indicated the fastest expansion of business activity across the U.S. service sector since July 2014. The upturn in output was supported by a marked rise in new orders following stronger client demand. However, despite further pressure on capacity, service providers registered only a fractional rise in employment. Meanwhile, concerns regarding the longevity of the pandemic led to a moderation in business confidence.
At the same time, cost pressures remained elevated, with the rate of input cost inflation accelerating to the fastest on record (since October 2009). In response, firms raised their selling prices at the second-quickest rate since data collection began over 11 years ago.
The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 59.8 in February, up from 58.3 in January and above the earlier ‘flash’ figure of 58.9. The expansion in output was the sharpest in over six-and-a-half years. The upturn was reportedly linked to stronger client demand and a further rise in new business.
The increase in new sales also accelerated in February. New order inflows expanded at the steepest pace since April 2018. Anecdotal evidence suggested the sharp upturn was due to stronger client demand and greater customer confidence following the start of the vaccine roll-out.
In contrast, service providers registered a renewed contraction in new export orders, albeit only fractional overall. Firms stated that ongoing COVID-19 restrictions and limits on travel in key export markets weighed on foreign client demand.
Input costs rose further in February, amid hikes in supplier charges and wage bills. Some service providers also noted that higher PPE prices pushed up cost burdens. The rate of cost inflation quickened to the fastest since data collection began in October 2009.
In response, service sector firms sought to pass on higher cost burdens to clients. The rate of charge inflation was the second-fastest on record.
At the same time, employment continued to rise in February, albeit only fractionally. The rate of job creation eased to the slowest in the current eight-month sequence of growth
Due to little-changed staffing levels, backlogs of work were accumulated at the sharpest pace for five months. Greater levels of outstanding business were often linked to a further rise in new orders and pressure on capacity.
Service providers signalled upbeat expectations regarding the outlook for output over the coming year in February. Optimism was commonly attributed to hopes of a successful vaccine roll-out and stronger client demand. That said, the degree of confidence moderated from that seen in January, amid concerns regarding the duration of the pandemic.
The IHS Markit Composite PMI Output Index posted 59.5 in February, up from 58.7 in January, to signal a substantial upturn in private sector business activity. A further robust expansion in manufacturing production and a faster increase in service sector activity helped boost total output.
Contributing to the overall rise in activity was a stronger rise in new business. Private sector new order growth was the fastest since April 2018. Despite a renewed contraction in service sector foreign client demand, an expansion in manufacturing export orders led to another modest upturn in overall new business from abroad.
Cost pressures remained marked in February, with the rate of input price inflation accelerating to the fastest since data collection began in October 2009.
Firms were able to pass on higher costs through a robust rise in output charges. The pace of increase was the second-steepest on record, behind November 2020.
Reflecting stronger pressure on capacity, private sector firms took on more workers in February. That said, service providers reined in job creation, with employment only rising fractionally. Manufacturers, however, registered a sharp rise in staffing levels.
Finally, business confidence moderated from that seen in January due to service sector concerns regarding the longevity of the pandemic and success of the vaccine roll-out.
U.S. Businesses Optimistic About Economy Due to Vaccines and Hiring, Fed Beige Book Says Federal Reserve’s compilation of anecdotes from business contacts shows economic activity expanded modestly at the start of the year
(…) “Economic activity expanded modestly from January to mid-February,” the report said, adding that “most businesses remain optimistic regarding the next 6-12 months.”
The Fed said the economy expanded in eight of the Fed’s 12 regions, with areas including the Northeast reporting mixed or stagnant results. The New York area economy declined modestly and the Boston area saw mixed results, the report said.
Overall manufacturing activity increased moderately despite supply-chain challenges, the report said, and nearly every region reported manufacturing growth. In Philadelphia, manufacturers told the Fed they have noticed longer delivery times, growing backlogs and increased demand from customers around the globe. (…)
While the report said business contacts expect hiring to pick up, it also said many businesses are having trouble finding workers, particularly in low-skill occupations and skilled trade positions. (…)
Business costs such as materials rose moderately from January through mid-February, the Fed said, widely attributed in many regions of the country to supply-chain disruptions and high demand in areas such as housing. (…)
The Beige Book’s assessment is pretty beige compared with Markit’s PMIs on both activity and costs pressures.
The Inflation Regime Change Is Already Upon Us Epochal shifts can be difficult to spot in real time, but the signs are there.
(…) Inflation psychology is difficult to change. But last year might do the job. The monetary and fiscal response was of a different order of magnitude from the crises that preceded it. (…) “Volcker said he was going to tame inflation, unemployment be damned,” says Alex Lennard of Ruffer LLP. “Now it’s the other way around. I don’t think people have quite realized that you’ve had this huge change in the mandate of policymakers.” (…)
Yesterday I listened to an exchange between David Rosenberg and Schwab’s Liz Ann Sonders, both essentially agreeing that inflation would rise in spring-summer but be transitory and mainly the result of the low-base effect. They both recognize the humongous savings in consumers’ bank accounts but don’t expect a gusher. One of Rosenberg’s main argument is that, following the 2020 splurge on goods, there is no pent-up demand, actually there is “spent-up demand”.
This chart shows real expenditures on durable goods, annually in blue and semi-annually in red. The splurge in the second half is obvious but considering the drop in the first half, the full year consumption of durable goods remained on the long-term trendline. There actually was no splurge, substantially weakening the spent-up scenario.
Where stimmies went:
U.S. Light Vehicle Sales Weaken in February
Light vehicle sales faltered last month. The Autodata Corporation reported that sales of light vehicles declined 5.6% during February (-6.7% y/y) to 15.88 million units (SAAR), the lowest level in six months.
Auto sales declined 8.2% (-20.9% y/y) last month to 3.56 million units, the lowest level since last July. (…) Sales of light trucks were off 4.9% (-1.6% y/y) during February to 12.32 million units versus record sales of 12.95 million in January. (…)
Imports’ share of the U.S. vehicle market held steady last month at 23.9%, up from 22.2% in January 2020 and a low of 19.9% during all of 2015. Imports’ share of the passenger car market strengthened to 34.0% in February, the highest level since November 2010. Imports’ share of the light truck market eased m/m to 20.9%, down from a high of 23.0% in November.
CalculatedRisk comments that “Sales in February were probably negatively impacted by the poor weather in many parts of the country.”
Canadian auto sales in February were down nearly 10 per cent compared with February 2020, the last full month before the lockdowns began due to the COVID-19 pandemic. (…)
Despite some lifting of pandemic restrictions, much of the country was still in various degrees of lockdown in February, DesRosiers said on Wednesday. These, combined with microchip supply chain disruptions, led to a drop in light vehicle sales, the firm said. (…)
Eurozone retail sales plunged in January
The European Union’s statistics agency said Thursday that the volume of retail sales fell 5.9% in January on month, a larger decline than the 1.7% drop economists polled by The Wall Street Journal expected.
Compared with January 2020, sales fell 6.4% in calendar-adjusted terms in the eurozone.
Eurostat also revised its figures for the previous months. Following the revision, eurozone retail sales rose 1.8% in December on month and 0.9% on year, instead of growing by 2.0% on month and 0.6% on year, as previously reported.
Compared with December 2020, retail sales in January decreased by 12.0% for non-food products and by 1.1% for automotive fuels, while sales increased by 1.1% for food, drinks and tobacco, Eurostat said.
Saudis, Russia Discuss Joint Oil Output Raise Ahead of OPEC Meeting Saudi Arabia and Russia are discussing a proposal to bring back a combined one million barrels a day of oil to global markets, people familiar with the matter said.
Cathie Wood’s ARK Investment Faces Reckoning as Tech Trade Stalls The firm’s exchange-traded funds are underperforming badly as investor sentiment shifts toward cyclical shares tied to an economic upswing.
(…) The ETFs suffered double-digit percentage decreases last week, their biggest routs since the stock market’s plunge last March, according to FactSet. Further declines among growth stocks on Tuesday and Wednesday drove even deeper drops among ARK’s funds, bringing the declines for its flagship ARK Innovation ETF to 14% over the past month.
The cascade of red has proved hard for many investors to stomach. ARK’s funds collectively lost more than $1.8 billion between Feb. 24 and Monday, their biggest stretch of outflows ever, according to FactSet. Together, they managed roughly $51 billion at the end of February, making ARK the ninth-largest ETF operator. That’s after attracting $36.5 billion in assets over the past year, more than Invesco Ltd. , Charles Schwab Corp. and First Trust—the fourth, fifth and sixth biggest ETF issuers in the U.S., according to Morningstar Direct. (…)
With tech stocks continuing to fall, ETF analysts and traders worry that a combination of broad market declines and additional outflows could create a snowball effect across ARK’s portfolio. That could potentially cause some of its more illiquid, small-cap holdings to trade sharply lower. (…)
Flows into ARK’s innovation fund turned positive Tuesday, pulling in $464.3 million, according to FactSet. (…)
TECHNICALS WATCH
None of the main indicators I watch is flashing red. However, the S&P 500 is sitting on its (still rising) 50-day m.a. and so is the MSCI World-ex-US Index. The Nasdaq 100 is now on its second support (100dma) and its 50dma bended down yesterday. That said, most of the short-term trends are weak.
- S&P 500 Index vs. 50-Day & 200-Day Moving Average Cross
- 13/34–Week EMA Trend
- Volume Demand vs. Volume Supply
The above chart is from NDR (via CMG Wealth like many others). Another service I use is showing a more meaningful uptrend in selling measures in recent days.
BTW, gold’s 13-week EMA vs. 34-week EMA is now signaling a bear market just when the USD technicals are turning up.
A ‘Mind-Boggling’ Individual Investor Boom Stirs Up Markets in Asia Stock trading has surged across Asia, as markets have recovered from the shock of the Covid-19 pandemic, with many younger individual investors piling into shares for the first time.
(…) Activity on the region’s two busiest stock markets, in Shanghai and Shenzhen, has risen toward levels last registered in China’s 2014 and 2015 boom. Trading on exchanges in Seoul and Hong Kong has broken records. Shares are also changing hands in huge numbers in Taiwan, India and some smaller markets like Indonesia and Vietnam. (…)
“We’ve seen armies of Asia retail investors appear and invest in sizes that are mind-boggling, both in terms of trading volumes and the value of shares traded,” said Herald van der Linde, head of Asia-Pacific equity strategy at HSBC.
In South Korea, individual investors have been net buyers of stocks in record quantities. On Wednesday, individuals made up 49% percent of all stock trading by value on the country’s main board, the Kospi, up from 40.4% a year earlier, according to figures from the exchange. (…)
Like in the U.S., investing apps have attracted individual traders with time on their hands thanks to the pandemic. Social media is also fueling interest: in South Korea, for example, influencers on YouTube and Instagram have helped inspire a new wave of day traders. (…)
Morgan Stanley Warns Tesla Is Losing Market Share To Ford Mustang Mach-E
Remember my January 11 post (THE DAILY EDGE: 11 JANUARY 2021: Tesla Now Has Company)
1 thought on “THE DAILY EDGE: 4 MARCH 2021”
Can gold entering a bear market be reconciled with a secular increase in inflation?
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