Manufacturing Continues to Moderate, Corporate Cash Holdings at Record High, and Demand for TIPS Remains Elevated

We’re seeing yet more evidence that manufacturing activity is moderating from its pandemic-era extremes, this time out of the Richmond Fed which saw activity fall significantly short of expectations this month. Price pressures in the sector are persisting at extreme levels as the nation grapples with supply-chain and worker shortages, and in many cases are filtering through to consumers. And while CFO’s lean toward staying liquid—corporate cash holdings set a new record this year—U.S. indices climbed to new highs this week. After such a sustained rally, could any talk of tapering at this week’s Jackson Hole summit be enough to let some air out of the tires? Investors will certainly be waiting for insights on inflation—it’s clearly still top-of-mind for many as fund flows into TIPS continue significantly outpace flows into traditional Treasuries. Finally, the full FDA approval of the Pfizer vaccine may have helped push the markets to new highs this week, but hospitalizations—particularly among children and the unvaccinated—are soaring. Please stay safe!

1. Three Fed surveys in a row are showing that manufacturing activity is returning to the low-growth regime:

Source: The Daily Shot, from 8/25/21

2. While both the Services and Manufacturing PMIs retreated last month, price increases have yet to blink:

Source: IHS Markit, from 8/24/21

3. Is the current rally getting long in the tooth?

Source: The Daily Shot, from 8/24/21

4. Low yields, inflation worries and at times an inverted yield curve have driven investors more into TIPS than regular treasuries:

Source: Bloomberg/ Arbor Research and Trading, from 8/24/21

5. This chart shows the demand & issuance of Treasury bonds. Who is going to replace the light blue going forward (let alone absorb any sales)?

Source: The Daily Shot, from 8/25/21

6. CFO’s have been understandably conservative as the economy tries to normalize:

Source: Wall Street Journal, from 8/25/21

7. According to the CDC, unvaccinated Americans are 29 times more likely to need hospitalization than those fully vaccinated:

Source: Goldman Sachs Global Investment Research/ Bloomberg, from 8/24/21

8. More U.S. children have been hospitalized during the current Delta surge than ever before. And schools are just reopening…

Source: Wall Street Journal, from 8/24/21

9. Interesting:

Source: U.S. Census Bureau, from 8/24/21