U.S. Services PMI: Business activity expands at fastest pace on record amid marked uptick in client demand. “Inflationary pressures are by no means confined to the manufacturing sector”
April PMITM data indicated a marked and unprecedented expansion in business activity across the U.S. service sector. Supporting the upturn in output was the fastest increase in new business on record. Pressure on capacity remained evident, as backlogs of work accumulated at a faster pace and employment rose at the second-sharpest rate on record. Some concerns regarding the sustainability of new order inflows weighed slightly on business confidence, although optimism remained relatively strong.
Meanwhile, input costs rose at the quickest rate since data collection began in October 2009 amid supplier price hikes. Firms partially passed on higher prices to their customers through the fastest rise in charges on record.
The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 64.7 at the start of the second quarter, up from 60.4 in March and higher than the earlier released ‘flash’ figure of 63.1 to signal a marked increase in service sector business activity. The robust upturn in output was the sharpest since data collection began in late-2009. Many firms noted that the expansion was linked to stronger client demand and a rise in new sales. Some companies, however, stated that output has not yet recovered to pre-pandemic levels.
New business increased at the most marked pace on record in April, with the rate of expansion accelerating for the fourth month running. The upturn was commonly attributed to the relaxation of lockdown measures and further reopening of businesses, with client demand expanding.
At the same time, foreign demand conditions improved further at the start of the second quarter. The rise in new export sales was solid overall, and the fastest since September 2020.
In line with stronger new business growth, service providers expanded their workforce numbers at a sharp pace in April. With the exception of November 2020, the latest round of job creation was the fastest on record. Panellists also linked employment growth to increased pressure on capacity.
Reflective of greater strain on business capacity, backlogs of work were accumulated at the strongest pace since September 2020. Alongside substantial supplier delivery delays, firms stated that outstanding business rose following efforts by companies to take on as much work as possible following extensive lockdown restrictions.
On the price front, input costs faced by service sector firms increased at an unprecedented rate in April. The substantial rise in cost burdens was often linked to hikes in supplier prices and greater transportation fees. Companies particularly noted higher costs of plastic, packaging, PPE and fuel.
Subsequently, firms sought to pass on part of the hike in costs to clients through higher output charges. The rate of output price inflation accelerated for the fourth month running and was the steepest since data collection for the series began in October 2009.
Finally, service providers signalled upbeat expectations regarding the outlook for output over the coming 12 months. Although firms were confident following stronger client demand and easing lockdown restrictions, optimism moderated slightly amid concerns regarding the sustainability of demand.
The IHS Markit Composite PMI Output Index* posted 63.5 in April, up from 59.7 in March, to signal the sharpest upturn in private sector output since data collection began in October 2009. The overall expansion was supported by faster growth in both manufacturing and service sector activity.
Broad-based increases in client demand drove the latest marked upturn in new business. The rate of growth was the steepest on record. Meanwhile, new export sales rose at the fastest rate since data collection for the series began in September 2014.
At the same time, private sector firms registered unprecedented increases in input costs and output charges in April. Manufacturers signalled a faster rise in cost burdens than their service sector counterparts.
Companies indicated a sharp upturn in employment during April, amid a marked accumulation in backlogs of work. Pressure on capacity led to the second-strongest rise in workforce numbers on record.
Meanwhile, business confidence moderated slightly. Although historically elevated, the degree of confidence was weighed down by concerns regarding supply chain disruptions and potential strain on future operating capacity.
The April PMIs show that the rebound in global economic activity is gathering momentum, with rates of expansion in output and new orders hitting 11-year highs. International trade in goods and services is also showing signs of reviving, as lockdown restrictions ease across a number of key markets. Inflationary pressures are still on the ascent, however, with strong cost rises driving the rate of increase in selling prices to a record high.
Eurozone retail sales jump as shoppers return
Eurozone retail sales jumped by 2.7% in March as easings of restrictions on shopping have obviously had a strong effect on consumption growth. This marks the second monthly increase in a row, indicating that January marked the second wave bottom in terms of retail sales. The recovery therefore already started over the course of the first quarter and we expect it to continue from here.
Among the larger countries, Germany and Netherlands showed the strongest improvements at 7.7 and 8.4% respectively, while France lagged with a -1% decline. This shows how important restrictions continue to be for the retail sector, dominating the growth profile.
For the months ahead, retail is still expected to show some catch-up as restrictions are expected to ease further. Consumer confidence is almost back at pre-pandemic levels, savings have increased and unemployment has been coming down over the course of the second wave. This makes a quick rebound in domestic demand a likely prospect for the summer months, helping GDP to be quick out the gates once restrictions are eased more structurally.
Cathie Wood’s Ark Battered by Selloff, Worst Run of Outflows
The ARK Innovation exchange-traded fund (ARKK) dropped for a seventh straight day Wednesday in its longest slide in nearly two and a half years. After surging roughly 150% in 2020 thanks to a string of prescient bets on Tesla Inc. and stay-at-home tech darlings, the negative stats are starting to add up.
ARKK, which edged lower in early trading on Thursday, is down more than 10% for the year and investors are piling into protection against more losses. Put volume hit 190,000 Tuesday, the most in six weeks and the fourth-most on record. The latest data show outflows for a sixth consecutive day, the longest streak since the fund launched in 2014.
The slide comes with many of the fund’s top holdings caught up in a rotation out of highly-valued tech companies. Investors have turned on the likes of Zoom Video Communications Inc., Roku Inc. and Teladoc Health Inc. — all top 10 holdings in ARKK. Once coveted for the promise of strong future profit growth, the specter of inflation now makes stretched valuations harder to justify after robust earnings from tech giants failed to revive investor interest. (…)
ARKK outflows over the six-day streak total about $785 million, according to data compiled by Bloomberg. In April, the $21 billion fund saw its first monthly net outflow since October 2019. (…) Meanwhile, a basket of unprofitable tech firms suffered a similar stretch of losses. After a 2.5% slump Wednesday, the fund has extended a decline from its February peak to 31%.
- The NDX is down 4.1% since its April 29 high. Its moving averages are still rising :
- The NYFANG index peaked on Feb. 16 and lost 9.8% since, currently testing its 100 dma:
- ARKK also peaked on Feb. 16 but has cratered 30.2% since, now testing its flattening 200 dma while the 50 and 100 dmas have turned down:
These trends at past market leaders are worrisome. Selling is cascading down from the more speculative to the relatively less speculative. The S&P 500 has stalled in spite of pretty spectacular earnings:
S&P 600 stocks are riding their still rising 50 dma…
…while the Russell 2000 is trying to hang on its flattened 50 dma:
Obviously, buying has become much more selective since mid-February, right after interest rates spiked up. A lot of the recent buying was on margin. Selling has not increased as much but many people must be starting to feel the pressure. This NDR chart, courtesy of CMG Wealth, should scare us all. Sell signals are generated when the percent change rises two standard deviations above the historic mean (black down arrows). Margin calls are not very far away…
That said, CMG’s 13/34–Week EMA Trend Chart remains positive, albeit extended.
Google Adopts Hybrid Workweek, With 20% of Its Employees to Work Remotely Google is adopting a hybrid workweek, allowing 20% of employees to work remotely, according to a company email, with most employees spending three days in the office and two days working elsewhere.
(…) The company [140k employees] also will offer four weeks per year where staff can work from anywhere with manager approval, a move that aims to give employees more flexibility around summer and holiday travel.
“The future of work is flexibility,” Mr. Pichai said. He said the changes aimed to help staff do their best work.
Mr. Pichai said compensation would be adjusted for employees who change locations. (…)
Salesforce Inc., Microsoft Corp. and others have adopted hybrid-work policies where staff will be able to work remotely during part of the week.
Facebook Inc. Chief Executive Mark Zuckerberg has said he expects as much as half of the company’s workforce—currently numbering more than 45,000—to work from home within 10 years.
The flexibility embraced by tech contrasts with major banks such as Wells Fargo & Co. and JPMorgan, which expect most of their workforces to return to the office following the pandemic. (…)
McConnell Says ‘100%’ of His Focus Is on Blocking Biden Agenda Senate Republican leader Mitch McConnell’s remarks come as Democratic and GOP lawmakers have focused on a possible infrastructure deal but see few prospects for agreement on other issues.
Senate Minority Leader Mitch McConnell said Republicans are united behind stopping President Biden’s agenda, putting a damper on already slim hopes for bipartisan cooperation in Congress ahead of more talks with the White House on a possible infrastructure deal.
“One hundred percent of my focus is standing up to this administration,” the Kentucky Republican said at a press conference in his home state Wednesday, in response to questions about infighting among House Republicans. “What we have in the United States Senate is total unity from Susan Collins to Ted Cruz in opposition to what the new Biden administration is trying to do to this country,” he said, referring to the senators from Maine and Texas. (…)
“Look, he said that in our last [Obama] administration…he was going to stop everything, and I was able to get a lot done with him,” Mr. Biden told reporters Wednesday afternoon. (…)