Although the Prices Paid component of the ISM Manufacturing report for August showed a slight increase this month, at a level of 46, it still remains well in contraction territory. Looking at the results of this month’s Commodities survey within the report also reflects the fact that downward price pressures remain in effect. In this month’s ISM Manufacturing report, respondents noted price increases in just two commodities and price declines in 11. This represents the fifth straight month that more commodities were up in price than down in price and took the three-month rolling average down to negative 8.3. While five straight months of negative readings undoubtedly indicates a weak pricing environment for manufacturers, we would note that back in the 2015/2016 period, there were 17 straight months where more commodities were reported as down in price than up in price.
While the relationship hasn’t been perfect, we would note that over time, changes in the direction of the ISM Commodities survey (light blue line) have tended to coincide with or precede changes in direction of the y/y readings in CPI. Looking at the chart, both series tended to track each other pretty closely from 2015 through mid-2018, but since then, we’ve seen a much steeper descent in the commodities survey than we’ve seen in CPI. That would suggest that either the commodities survey has to start rising again or else CPI may see downward pressure in the months ahead. One thing we would note is that since 1999, when the commodities survey has been two points either above or below the current level of -8.3, the average y/y CPI reading has been +0.5% versus the current level of 1.8%. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.