The latest Institute for Supply Management (ISM) reports showed both manufacturing and services remaining in expansion territory. However, the reports also revealed rapidly increasing prices in both sectors. We created the InvesTech Blended Price Trends Composite to monitor how the price increases across both manufacturing and services impact the overall economy. This composite looks at a combination of the Prices Index from the ISM reports with the Services Prices Index accounting for 70% while Manufacturing accounts for 30% to reflect their approximate contribution to the U.S economy. This measure shot up from 65.3 to 73.0 in March, which is the highest level since June of 2022 and a clear indication that pricing pressures are rearing their ugly head once again.
The faster price growth noted by executives in the reports is concerning and could translate into higher inflation. If signs of inflation reemerging continue to heat up, the Fed will be forced to turn their attention to the stable prices side of their dual mandate which will effectively take rate cuts off the table in the coming months. As a result, it will be critical to watch the Personal Consumption Expenditures (PCE) Price Index and the Consumer Price Index (CPI), both out later this week.