Preliminary Evidence That Both Business Expansion - And Widespread Inflation - Have Continued In June

Yesterday, in addition to the retail sales report, general business sales and inventory were reported - but unfortunately only through April. Nominally, sales (red in the graph below) increased 1.2% while inventories increased 0.5%:

Here is the longer-term look at total business sales and inventories:

In case it isn’t obvious from the above graph, sales turn both higher and lower before inventories, and the signature of an oncoming recession is sales having turned down while inventories are still increasing. Since sales were up through April - and would be even if we adjusted for inflation using either the PPI or CPI - that confirms that the economy was expanding - 2 months ago.

But the early indications from the New York and Philadelphia Fed manufacturing surveys are that manufacturing activity has continued to expand through June, but inflationary pressures are still elevated as well.

Here are the averages of the two manufacturing indexes for general activity (blue) and new orders (red):

Both showed expansion. To cut down on noise vs. signal, I recommend using the three-month average- which for both metrics remained stable at a moderate expansionary pace.

Here are the same averages for prices paid (blue) and received (red):

Both of these continue at more widespread levels than during the pre-pandemic expansion, although not as widespread as during the immediate post-pandemic inflationary period. But perhaps most importantly, both prices paid and received continued to show widespread increases this month, indicating that the inflationary shock from the Iran war has not ended.