This is for October, advance notice, so to speak.

By Wolf Richter for WOLF STREET.

From the S&P Flash US PMI today:

“October’s flash PMI data indicate that the US economy continues to boom at the start of the fourth quarter. The output readings from the survey are consistent with GDP growing at a 5% annualized rate after a 4% expansion was signaled for the third quarter.

“Especially healthy corporate earnings and profits are also indicated, and hiring has surged as companies seek to boost capacity to fulfil stronger customer demand.

“If the reopening of the economy after COVID is excluded, recent months have seen the best growth spell for US businesses since early 2015.”

“Robust domestic demand was accompanied by renewed signs of export growth.”

Backlogs, an indicator of future business growth, rose at the sharpest rate since May 2022, spread across both manufacturing and services, which encouraged companies to increase their capacity and hiring, with employment rising at the second-fastest pace in over four years, according to the S&P PMI report.

But, but, but… hot inflation and struggling supply-chains.

“Cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services.

“Supply chain bottlenecks have meanwhile intensified, and order book backlogs are growing, making it easier for companies to pass higher costs on to customers.

“The result is the sharpest increase in selling prices for over four years to a pace that indicates consumer price inflation is likely to rise further above the Fed’s target in the coming months.”

As companies tried to pass on a steep rise in costs, services inflation rose at the fastest rate since August 2022; and manufacturers’ selling prices rose at the fastest rate since July 2022.

Companies didn’t just cite oil-based input costs that sored, such as energy, fuel and freight rates. They also cited other raw materials, including steel, aluminum, and copper, “often due to tariffs or shortages.”

Service providers also cited higher wages and higher costs of utilities and insurance.

Material shortages, low inventories, overloaded suppliers, labor shortages, rising back orders, shipping delays, and import delays caused supplier delivery times to lengthen the most since 2022.

The flash Manufacturing PMI for manufacturers in the US rose to 56.0 in October, the fastest rate of growth since May 2022 – that was the growth spurt during the reopening of the economy after covid. Values above 50 indicate growth; values below 50 indicate contraction.

Job growth at manufacturers accelerated at the fastest pace since March 2012, when the economy was bouncing out of the Great Recession.

Suppliers’ delivery times to manufacturers lengthened “to the greatest degree since July 2022.”

Growth rates of production and new orders, though slightly lower than the growth rates in September, remained elevated.

The flash Services PMI Business Activity Index, at 57.9 for October, was the second-highest growth rate in nearly five years, behind only September.

Lots of economic growth and lots of inflation, that’s what the PMIs for October reflect – and that’s the definition of an economy that is “running hot.”

Letting the economy run hot has also been the official government policy of this administration as a way of making the deficit and the debt more manageable since neither Congress nor the administration — any recent Congress and administration — have shown any intention whatsoever of addressing the deficit via fiscal policy changes.

The Fed, by cutting interest rates last fall even as inflation was accelerating, has shown that it supports this policy of letting the economy run hot. With the rate hikes now underway, it’s indicating that it tries to prevent that process from spiraling out of control.

These high inflationary pressures in October that companies talked about here are a bad omen for the inflation indices in the coming months, including the Producer Price Index.

The PPI, which tracks inflation that businesses across the board face, already jumped by 6.3% year-over-year in September, the worst inflation that businesses have faced since December 2022. And the S&P flash PMI data today indicate that those inflation pressures still got worse in October.

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