Pro Perspectives 7/1/20

July 1, 2020

As we discussed on Monday, with the economic data rolling in this week, the table has been set for some positive surprises.

We're seeing it. 

And I thought we would see some inflation data that would begin shifting the attitude on the inflation outlook. I don't know about the attitude (yet) but we're getting the data.  

Check out this chart from this morning's numbers on manufacturing activity for the month of June. 

The month-over-month increase was the hottest since August of 1980. 

This is what you get when you turn demand on, like a light switch (lifting stay-at-home orders), and that demand is met with a supply chain disruption.

With that, I've been waiting to see the very important inflation component of this report (the ISM prices paid), which came in this morning.  

It was indeed a hot number.

In an economy where economists are forecasting a contraction for the second quarter, of anywhere from down 35% to down 45%, the price that manufacturers pay for raw materials in June had a huge jump. 

That leads to this index that shows buyers are no longer in the position of strength to negotiate on price.  And I suspect it's going to get a lot worse for them. 

Again, we've already seen higher prices in food/groceries.  Now, we will begin seeing it in other final products, as manufacturers are paying more for their inputs.

As we discussed frequently in my daily notes, surrounding the inflation story, a key piece in this story is wages.  And we'll get more on that tomorrow morning, in the jobs report (i.e. average hourly earnings).  

Remember, thanks to hazard pay and federally subsidized unemployment checks, we've had this jump in wages over the past two months. 


As we've discussed, the genie is out of the bottle, and higher wages are here to stay.  Trump signaled that today, as he said he'll have a "statement on minimum wage coming in the next two weeks." 

This is all continues to support the thesis we've discussed here, on "the global reset of prices and wages."  This is simply the product of global governments and central banks flooding the world with new money.