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US Services Surge Signals 3.5% GDP Growth, But Rising Cost Concerns Loom

Courtesy of ZeroHedge. View original post here.

US Services surged to a three-year high, according to Markit’s PMI survey, but with business optimism near record highs, concerns over rising costs and the impact of tariffs are rising.

Inflationary pressures intensified in May, as input cost inflation accelerated to the fastest since October 2013. Anecdotal evidence suggested the latest rise in cost burdens was due to higher material inputs, often linked to tariffs, higher interest rates and rising energy and fuel prices. Output charges also increased at a quicker rate, with inflation accelerating to a three-month high.

Anecdotal evidence suggested the latest rise in cost burdens was due to higher material inputs, often linked to tariffs, higher interest rates and rising energy and fuel prices… or put another way – corporate margins are about to get crushed.

  • US Services PMI are back above the PMI Manufacturing level at 56.8 (better than expected and up from 54.6 in April)

  • ISM Services rebounded from 4-month lows to 58.6, catching up to Manufacturing (better than expected)

Prices Paid also jumped in the ISM data along with New Orders and Employment.

ISM Respondents signaled concerns over prices and supply chain problems…

“The supply chain is shuttering because of a lack of drivers and equipment causing delays in multiple modes of transportation. The activity to adjust to this is not causing stockouts yet, and we are increasing inventory levels in anticipation of worsening conditions.” (Wholesale Trade)

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

The US economy kicked up a gear in May. A markedly improved service sector performance takes the final composite PMI reading above the flash estimate and to its highest for over three years.

“With business optimism about the year ahead running at one of the highest levels seen over the past three years, it looks likely that good growth momentum will be sustained in coming months.

“However, the survey also reveals increased concerns regarding rising costs and the impact of tariffs. Across both manufacturing and services, companies’ costs are now rising at one of the strongest rates seen over the past seven years, which will likely feed through to higher consumer prices in coming months.”

Williamson concluded: “The composite PMI is a reliable leading indicator of GDP, and has risen to a level which is consistent with the economy growing at an annualised rate of approximately 3.5%. “

Which is above consensus for now…


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