Manufacturing survey shows inflation worries 'worse than pandemic era,' adding to Fed pressure
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- ISM's July manufacturing survey posted a 55.6 reading, the fastest pace in more than four years and best since May 2022, beating Wall Street's 54.0 expectation
- The production index spiked 6.3 points while the employment gauge hit its highest since August 2022, marking its first expansion in 33 months
- The prices index sat at 71.1, meaning nearly three-quarters of respondents reported prices still rising — the 22nd straight month of that pattern
- Manufacturing executives told ISM that pricing volatility and lead-time extensions are 'arguably worse than the pandemic era,' with a primary metals manager saying they 'yearn for the coronavirus pandemic chaos, which was more manageable'
- The Federal Reserve held its key rate at 3.5%-3.75% last week, but LPL Financial's Jeffrey Roach wrote the 'Warsh-led Fed will be pressured to raise rates on September 16' given demand-induced inflation
- CME Group's FedWatch showed 64.5% odds of a September FOMC rate hike as of midday Monday, down slightly from Friday
- Goldman Sachs raised its third-quarter GDP tracking to 2.4%, up from its initial second-quarter estimate of 1.5%
Why it matters: With the ISM prices gauge stuck above 70 for 22 consecutive months and manufacturing employment finally expanding, Fed Chair Kevin Warsh faces a textbook stagflation test: a 55.6 PMI signals economic strength while respondents say current pricing volatility surpasses Covid-era disruptions. That combination gives the FOMC a green-light to hike on September 16, where odds already sit above 64%.
