Wells Fargo: Unusually Volatile Service Prices

Amid the highest ISM services reading since 1997 in October, Wells Fargo highlights the highest reading of any sub-component: prices paid.

• They note that this cycle is unusually volatile for services prices, as the sector contends both with supply chain constraints and rising costs of many businesses' largest input: labor.
• While of course the main focus is on the overall inflationary impact in the economy, Wells Fargo notes that service sector profitability is under threat.
• "over the past two decades, services prices (blue line) tend to be less mercurial than pricing in the manufacturing sector (red line). During periods of both rising and falling prices, the red line tends to be the one defining the highs and lows, as factories routinely deal with the ups and downs of commodity costs and inventory dynamics."
• "In the latest example of how this cycle is different, note how the prices measure for the service sector is tracking more closely with its manufacturing counterpart. This comes as a near-record share of small businesses are signaling that they have pricing power (purple line)."

Source: Wells Fargo