What’s going on?
Data out on Friday showed European business activity climbed at its fastest rate in 21 years in July, but the shortage-riddled manufacturing sector is still missing that special something.
What does this mean?
Monthly business activity surveys ask company managers how busy they’ve been compared to the month before, providing a near real-time snapshot of economic performance. And there was some much-needed good news for the eurozone, whose better-than-expected growth was driven by a services industry that saw activity levels hit a 15-year high. But where restaurants, bars, and the like have been living la vida loca, the region’s manufacturing sector is still hamstrung by the lingering effects of the pandemic: it reported a slowdown in growth on the back of supply chain delays.
Why should I care?
The bigger picture: Someone’s going to pay for this.
Supply disruption has been one of the biggest stories of the year. See, demand for just about everything is surging as economies bounce back, but the scramble to ramp up production has led to shortages across multiple industries – with microchips the highest-profile example. The resulting squeeze is driving up costs for businesses, and encouraging many of them to raise prices on their customers to make up the shortfall. Case in point: Friday’s survey showed firms’ selling prices rose at a near-record pace in July, which won’t do much to put inflation-wary investors’ minds at rest.
For markets: Everybody hurts.
The struggle became even more real last week when Unilever warned that the prices of the materials it uses are climbing at their fastest pace in more than a decade. That’s forced the consumer staples giant to scale back its profit targets for the year, and unimpressed investors sent its shares down almost 6%. But Unilever isn’t a one-off: its warning comes a month after rival Procter & Gamble said higher commodity and transport prices will add $600 million to the company’s costs this year.