Inflation Is Down, but It’s Up; Jobs Are Down but They’re Up, Too

Payrolls are up again in the latest report, making the Fed’s job a little harder. So are wage gains! However, according to the latest Purchase Managers Index, prices paid on the services side of the economy by producers are down, which means inflation could come down. That’s if you believe it. But how can that be true when recent reports said the opposite and when rising employment coupled with rising wages indicates the opposite as well?

This report is a case where you have to look under the hood to see what the heck is going on. When you do, the numbers don’t even square with themselves. Consider the following peculiar case:

Price pressures are easing as employment rises said the Reuters new report about the Institute for Supply Management's report. The Reuters headline says that the services sector expanded modestly in March, while the lead paragraph says,

U.S. services industry growth slowed further in March, while a measure of prices paid by businesses for inputs dropped to a four-year low, which bodes well for the inflation outlook.

So, did growth in services “expand modestly” or “slow further?” Let’s say they meant to say that the services sector of the economy is still growing, as it did last month, but just not at as quick of a pace.

The Institute for Supply Management (ISM) said on Wednesday that its non-manufacturing PMI fell to 51.4 last month from 52.6 in February.

Anything over 50 is considered expansion or growth. So, OK, growth, albeit at a slower rate. But that was also the second straight monthly decline in the rate of growth, and it is getting pretty close to the level where it kicks over into recessionary numbers. Since services account for about 70% of the economy, we’ll take what we can get, I suppose.

With demand slowing, so did services inflation. The survey's measure of prices paid for inputs by businesses dropped to 53.4, the lowest reading since March 2020, from 58.6 in February.

Wow! Lowest reading in inflation on the producer side of the economy that eventually trickles to the consumer side … since March of 2020 when the world as we knew it exploded! It is at this jumping-off point, however, that the numbers start to get dodgier.

Data last week showed services inflation excluding energy and housing cooling considerably in February after accelerating in January.

Not really. Inflation was softer than January’s scorcher, but it was still hotter than it had been last year. I’m starting to question these numbers, so let’s dig deeper:

S&P Global’s Services PMI printed down from February—51.7 for March v. February’s 52.3. (That’s the headline number for services provided.)

ISM Services PMI also printed down from February—51.4 for March v. February’s 52.6.

So, growth is slowing down in both indices to something close to stall speed, though the change is still slightly positive month on month.

But then you get the spinmasters:

"The US service sector reported a further rise in business activity in March, adding to signs that the economy enjoyed robust growth in the first quarter. Combined with an acceleration of growth in the manufacturing sector, the latest services PMI data point to GDP having risen at an approximate 2% annualized rate in the first three months of the year.

“Robust?” That’s stretching it. Sure, growth is technically still happening, but it is almost now at a stall speed, so maybe nearing stall speed would be more important to note. It’s a bit like boasting while you’re in the air that your airplane is “still flying.” Well, we hope so! Never mind the sputtering engine.

But then we come to this where the numbers get even dodgier:

"The sustained upturn is being accompanied by renewed upward price pressures, however, with wage growth in particular driving costs higher.”

Which is it for crying out loud? Didn’t the headline and the article, itself, both say that price pressures dropped?

The comments near the top of the article came from Reuter’s coverage of the ISM report. The comments just given come from the Chief Business Economist at S&P Global Market Intelligence, which owns both the ISM and S&P indices. So, who are you gonna believe— the guys who are responsible for the report or the reporter who is covering the report for Reuters? We all know good financial reporting is hard to come by these days.

Say the people behind the indices …

Rising raw material and fuel prices are also adding to cost burdens, which is in turn driving average selling prices for goods and services [consumer inflation] higher at a rate not seen since July of last year.

Oh, so lots of inflation! The highest rate of rise since last summer when inflation first started to get reported here in The Daily Doom as edging back upward … if you knew where to look!

Both manufacturers and services providers alike are seeing intensifying cost and selling price inflation rates, which is likely to feed through to higher consumer price inflation in the near term.

Oh, imagine that! Sure didn’t get that out of the Reuters report!

Says Zero Hedge on this very matter,

The data is there to baffle you with bullshit.

Apparently so. Here their summary of the conflicting articles:

So, take your pick: either Services prices are rising at the fastest pace since July (S&P Global)... or they are rising at the slowest pace since March 2020 (ISM).

I know I was scratching my head when I read the latest articles, but I found the idea that prices were declining to be hard to believe. So, if figured, if I scratched beneath the surface, I’d find that just was not so. Sure enough. If something smells fishy, start looking for where the fish is buried.

You might also ask, if you are oddly inclined to believe Reuters' reportage on the report, why, if prices are on the rise in aggregate, are almost none of the component prices inside of the report rising? Yeah, take a look at the evidence. Labor costs were up considerably. Commodities were almost all up. In fact, the only things that were down in commodities were natural gas and steel products.

So, pick your price, I guess.

As for labor, ADP’s payroll report out, agrees fully with the rising costs scenario, so there is more evidence from another source:

Companies added 184,000 workers on the month, an increase from the upwardly revised February gain of 155,000, according to payrolls processing firm ADP.

In addition to the strong employment pickup, ADP reported that wages for workers who stayed in their jobs increased 5.1% from a year ago.

That is the fastest rate of job growth … also since last summer, coincidentally. It’s not a big number, but it’s not an anti-inflationary number either. Wage growth had been declining, but the 5.1% takes us back to the wage growth rate we had a year ago. People willing to quit and switch jobs did twice as well at an average gain of 10% YoY.

Inflation has been cooling, but our data shows pay is heating up in both goods and services.

Well, except that inflation stopped cooling in a number of ways … coincidentally last summer, too, if you were looking in the right places to see what would be coming down the line now … which just came down the line!

Job gains were fairly broad-based, led by leisure and hospitality with 63,000. Other sectors showing significant increases included construction (33,000), trade, transportation and utilities (29,000), and education and health services (17,000). Professional and business services saw a loss of 8,000.

As I’ve been consistently promising for three years now, the Fed is not going to catch any slack from its broken labor gauge—not in time to keep it from crashing everything anyway.

So, how are those Fed rate cuts looking, Fed Fantasizers? (Speaking miraculously to those not in my own audience here.) Still going to stay with your revised bets for June now that March ran off the rails, or are you going to push that off again? On Friday we’ll get the Bureau of Lying Statistics jobs and unemployment figures. Those should be fun and fully electioneered.

Meanwhile, oil, the commodity that prices everything, almost busted past the $90 mark as has been expected on these pages. Brent crude is at $89.70/bbl. Another solid hit by Ukraine on another major Russian refinery like the big one reported in yesterday’s Daily Doom ought to put us over the mark. Of course, we all know that oil cannot sell outside of Russia due to all those sanctions placed two years ago … except that we all know that it does. So, war is taking its toll by pushing up oil delivery costs due the turmoil on the Red Sea and taking out more and more supply.