Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US business activity remains high despite record supply shortages
US PMI survey data showed that business activity continued to expand in June as further easing of COVID-19 restrictions boosted new orders. The manufacturing index indicates that June saw the greatest improvement on record, as the reading expanded from 62.1 to 62.6. Meanwhile, the services index fell from a record high of 70.4 to 64.8 in June.
Both surveys pointed to recovering customer demand as the defining factor for growth but many companies are struggling to fill orders due to supply constraints or a shortage of skilled workers. Price pressures have slipped from all-time highs in May but continue to trouble businesses, with some evidence that higher prices are being passed through to customers.
UK business confidence remains high despite input price pressures
The UK PMI survey showed that business confidence moderated slightly in June, despite remaining at elevated levels. The manufacturing print dropped to 64.2 from its all-time high of 65.5 in May, while the services PMI slipped back to 61.7 from a high of 62.9. Both readings are well above 50, which is the level that generally indicates expanding activity levels.
Underlying the data, survey respondents highlighted employment growth and increasing pressure on prices. Manufacturing input and output prices both stood at all-time highs in June, as a result of severe supply shortages and with a knock-on impact of increased pressure on supplier delivery times too.
Minutes from the Bank of England (BoE) meeting last week presented an upbeat tone, emphasised by the large upgrade to GDP forecasts and description of ‘two-sided’ inflation risks. While BoE Governor Andrew Bailey wasn’t explicit about the risks that were being monitored, he did note the heightened uncertainty at present and the need for clear evidence that inflation could be sustained at around 2%. The latter comment points to the idea that current inflationary pressures – such as those linked to energy prices and supply shortages – are transitory and should diminish with time.
Following the hawkish tilt from Fed Chairman Powell a few weeks ago, equity markets rebounded higher to make fresh all-time highs once again last week. The sector rotation from value to growth seems to have flipped, or at least abated, as a more hawkish Fed suggests higher interest rates and less inflation in the future, and therefore a higher premium for companies with growth. The effect has also been felt in most commodity markets where futures prices have fallen from highs.
Look out for next week’s update, where we’ll be focusing on China PMIs and the US jobs report.
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