After a read of the recently released manufacturing and services Purchasing Managers Index (PMI) reports for June, goods prices are softening significantly. However, the service sector is still experiencing price pressures, albeit at a deaccelerating rate.

Services comprise over 60 percent of the CPI, with shelter around 35 percent of the basket.

Even though the manufacturing sector is in contraction, hiring continues as if the employers are hoarding workers, similar to how consumers hoarded toilet paper during the panic. Granted, the employment data is a lagging indicator, but recency bias is a real bitch to break.

Nevertheless, we are taking the under on tomorrow’s core inflation print. Our recency bias, which we own, is that manufacturing prices tend to lead the headline inflation data, which is underreported.

For example, a special surcharge appears on our bill every time we dine out. A 3.5 percent surcharge was added to the bill at brunch on Sunday! Argh! We’ve seen labor, transport, and energy surcharges, just to name a few. Check your bills, folks

PMI Price Components:

Here is our summary of the PMIs with a little help from our AI friend:

In June, the U.S. manufacturing sector experienced a decline in input costs for the second consecutive month, with material prices dropping the most since May 2020. Suppliers offered promotions to incentivize purchases of inputs. Only one manufacturing industry reported price increases in June, while the majority reported either the same or lower prices. Despite weak demand, manufacturers hired new workers.

On the other hand, the U.S. services sector faced higher cost burdens due to supplier shortages, increased interest rates, and higher wage bills. Input prices rose at the fastest pace in five months, but efforts to remain competitive led to slower increases in charges. However, service sector firms saw a significant rise in cost burdens, primarily driven by higher wage bills, supplier prices, and borrowing costs. Cost inflation accelerated, reaching its highest level since January. Twelve service industries reported increased prices, while three reported price decreases.

Place your bets!