Weekly Update - Quarter ends on supply squeezes and price pressures

The September purchasing manager surveys (PMI) came out this week, giving us an insight into the key factors affecting the economy as we head into Q4.

Activity slowing but still strong. The surveys confirm the pace of economic activity eased back at the end of Q3, but suggest growth remains exceptionally strong (55 in the United States after 55.4 in August, 56.2 in the Eurozone after 59 and 51.4 in China after 47.2, see chart left). Manufacturers are still going flat out in the United States and euro zone, reporting PMIs close to 60 in September, as demand for goods remains high. Service surveys also look healthy, with a notable uptick in China despite domestic demand that is still being damped by Covid containment measures.

Pressures on supply and prices. Alongside its activity indicators, the PMI survey also showed supply times remain high (see chart right), reflecting pressures on production chains. The still booming economic recovery is hitting supply constraints, generating bottlenecks in multiple sectors. These pressures should gradually ease as activity dips back to normal. However, September figures also detected persistent high pressure on the price of inputs, even though the survey was run before the latest surge in energy prices (featuring sharp jumps in oil and gas prices). These latest developments could weigh more heavily on activity and inflation in the months to come.

Bottom line.
September's PMI survey confirms our scenario of growth remaining strong but potentially hampered by a number of risks, notably ongoing friction in production and supply chains. We stand by our prudent portfolio allocation, with interest rates set to rise further and equity market volatility likely to persist for the next few weeks.

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