“Widespread Reticence To Take On Extra Staff” Despite US Manufacturing PMI At 1 Year High As Inflation Soars

Despite a final October print for PMI at 53.4 (highest since Oct 2015), US manufacturers remain skeptical and, as Markit notes, “hiring is also being subdued partly by worries about escalating costs, with the October survey recording the largest monthly rise in factory prices for five years.” Following disappointments from regional Fed surveys (Dallas and Chicago notably), ISM Manufacturing rose to 51.9 (with prices paid rising and new orders tumbling).

Both ISM and Markit surveys of US manufacturing improved in October…

ISM Breakdown shows prices rising and orders falling (and a drop in inventories is not helpful for Q4 GDP). Overall, four components declined, among which New Orders, while 6 rebounded, including Prices, suggesting to potential stagflation should growth not follow:

New orders fell to 52.1 vs 55.1

Employment rose to 52.9 vs 49.7

Supplier deliveries rose to 52.2 vs 50.3

Inventories fell to 47.5 vs 49.5

Customer inventories fell to 49.5 vs 53.0

Prices paid rose to 54.5 vs 53.0

Backlog of orders fell to 45.5 vs 49.5

New export orders rose to 52.5 vs 52.0

Imports rose to 52.0 vs 49.0

Asal, New Orders fail to show a sustained rebound.

Meanwhile Inflation fears soar:

Amid reports of rising commodity prices, average input costs increased for the seventh month in a row. The rate of inflation was also the greatest recorded by the survey for two years, and encouraged companies to pass on these higher costs to clients in the form of increased output charges. The net result was a solid pace of charge inflation that was the strongest seen since November 2011.

And the rising costs of inflationary inputs is weighing on employment…

The ISM respondents were very cheerful, as usual:

Domestic business steady. Export business trending higher.” (Chemical Products)

“Very favorable outlook in the market.” (Computer & Electronic Products)

“We are looking at a considerable slowdown for October and November. Production is down 20 percent.” (Primary Metals)

“Business is much better.” (Fabricated Metal Products)

“Strong economy driving steady sales.” (Food, Beverage & Tobacco Products)

“Due to the hurricane and other storms, our business is up significantly.” (Machinery)

“Ongoing strength seen in 2016 — it’s a good year.” (Miscellaneous Manufacturing)

“Customers continue to press price reductions.” (Transportation Equipment)

“Our business remains strong.” (Plastics & Rubber Products)

“Hard to predict oil price dynamics, but there seems to be a consensus that the market is stabilizing, at least above USD 50 bbl this month.” (Petroleum & Coal Products)