Flash PMI Reveals Persistent Inflation Pressures, Supply Chain Risks

We have our first hard look at how the manufacturing and services parts of the domestic economy fared in April, courtesy of S&P Flash PMI data. The numbers reveal a sequential improvement in both manufacturing and services, but also supply problems and, as we suspected, a pick-up in inflation pressures. The data also showed a modest pickup in employment in April compared to March, but it called out company “concerns over the need to reduce staffing costs in the face of the uncertain demand environment and high input prices.” We see that validating our concerns over the duration of the U.S.-Iran conflict and its fallout.

Before we get into some of the nitty-gritty, let’s review the headline figures for the Flash April PMI data:

Flash U.S. Composite PMI Output Index: 52.0 vs. March’s 50.3

Flash U.S. Services PMI Business Activity Index: 51.3 vs. March’s 49.8

Flash U.S. Manufacturing PMI: 54.0 vs. March’s 52.3

On their face, those figures point to a pickup in economic activity during April, however, reading further into the report, we find the pickup in manufacturing activity was tied to “stock building in the face of concerns over supply availability and price hikes.” In other words, pulling demand forward ahead of expected price increases and concerns over supply chain disruptions. Supplier delivery times in the manufacturing sector lengthened to the greatest extent since August 2022:

War-related issues led to increasingly widespread supply problems, adding to existing challenges related to tariffs. Factories reported the greatest lengthening of supplier delivery times since August 2022, extending a trend that now stretches to eight months. In addition to shipping-related disruptions due to the war, shortages were also linked to the additional purchasing of safety stocks.

Now let’s turn and take a more granular look at what S&P’s Flash findings had to say about inflation pressures:

Average prices charged for goods and services rose in April at the fastest rate since July 2022 amid increases in input prices and supply scarcities. While manufacturers reported an especially steep jump in goods prices, with the rate of inflation at a ten-month high, service sector selling price inflation also accelerated to reach a 45-month high.

Input price inflation meanwhile hit an 11-month high in April and was the second highest in over three years. Manufacturing input costs increased especially sharply, with inflation a ten-month high and the second-fastest increase since July 2022. The rise in services costs was the largest since December and among the sharpest in the past three years. Alongside higher energy prices, companies reported increased charges for broad swathe of commodities and inputs. Rising staffing costs were also reported.

Not surprisingly, prices are already spiking higher in this environment, and not just for energy but for a wide variety of goods and services. The overall inflation picture is now the most worrying for almost four years.

The above clearly reinforces the flow through of higher energy and petrochemical prices as well as higher transportation costs. Here’s the thing, with the Flash data being released today, that means the data was collected largely before the rebound we’ve seen in oil prices over the last few trading sessions. Our point is that the probability of those higher prices is yet to be felt. This keeps us mindful about margin risk, especially for manufacturing-related companies as they report their Q1 2026 results and update their guidance.

Looking at the totality of the S&P’s findings – pull forward in demand, supply chain issues rising input costs, margin risk – gives us enough reason to maintain the Portfolio’s market-hedging, inverse ETF positions as the pace of corporate earnings rachets up even further next week.

At the time of publication, the Pro Portfolio had no position in any security mentioned.