Worries over inflation in the U.S have largely focused on rising commodities prices and the resulting rising costs for manufacturing businesses.
But there may be another symbol of rising inflation hidden in U.S. manufacturing data, the increasing length of delivery times, according to SocGen.
This data point is usually good news. It means businesses will start outsourcing portions of production to other businesses, leading to more hiring, and spreading growth. SocGen specifically suggests that, in the eurozone, this could lead to higher employment numbers is countries like Spain and Greece, with jobs moving from Germany there.
But there is a concern that, if this problem continues, the prices for goods will rise.
From Societe Generale:
Longer term, however, were such a situation to persist, tensions would inevitably feed into higher inflation. The tradable goods sector has been a catalyst of higher inflation around the world over the last 18 months. Inflation in tradable goods should not pose a problem so long as it is capped by weak domestic demand for services, but it could become more problematic when domestic demand strengthens. Preventing such an inflationary outcome would require a big boost on the capex front, with companies no longer accumulating cash like they have been doing since the end of the recession.
So if businesses continue to hoard cash, instead of reinvesting, because their leadership remains concerned about the economic outlook, this positive indicator could turn into a worrying one.
An update on global delivery times, surging higher, from SocGen:
Photo: Societe Generale