Stagflation Signs Mount as Fed Manufacturing Index Shows Activity Slump, Inflation Higher

Autonomous robots assemble an X model SUV at the BMW manufacturing facility in Greer, S.C., on Nov. 4, 2019. Charles Mostoller/Reuters

Signs of stagflation are mounting as recent data from the Federal Reserve Bank of Richmond reveal dismal manufacturing activity and elevated inflation weighing down on the U.S. economy.

The Richmond Fed’s Manufacturing Index declined from an already low level of zero in September to -10 in October, going below its August level, said an Oct. 25 report by the bank. Two of the index’s components “deteriorated notably”—with the index for shipments falling from 14 to -3, and the index for volume of new orders declining from -11 to -22 during this period. The unemployment index remained unchanged at zero.

The local business conditions index fell from -5 to -16, with “considerably more” firms expressing pessimism about conditions in the next six months.

While the manufacturing numbers for October came out to be poor, data also showed that inflation, both on the producer and the consumer side, remained an issue.

“The average growth rate of prices paid and prices received both increased again in October, after moderating in September. Expectations for both over the next 12 months also increased slightly from September,” the report said.

The 12-month Producer Price Index (PPI), which measures wholesale inflation, has remained at or above 8 percent for every single month since July 2021, according to data from the U.S. Bureau of Labor Statistics (BLS).

Meanwhile, the 12-month Consumer Price Index (CPI), a measure of annual inflation, has remained at or above 7.5 percent for every single month this year.

Weakening growth and elevated inflation are two of the signs of an economy potentially in stagflation, with the third being high unemployment rates.

Stagflation Risk

In a recent op-ed at Bloomberg, economist Mohamed El-Erian blamed the Federal Reserve for having “badly misdiagnosed” inflation last year. As it plays catch-up, the central bank’s actions risk pushing the American economy into a recession, putting millions of people “out of work” and exacerbating income inequality.

“Yet, also as worrisome is the possibility that an early ‘pivot’ in Fed policy would risk leaving the United States languishing in a stagflationary swamp,” he wrote.

An Oct. 20 report by the Federal Reserve Bank of Philadelphia also showed that manufacturing activity in the region had declined in October for the second consecutive month amid rising inflationary pressures.

Economist Peter Navarro, who served as an advisor under the Trump administration, believes the United States has already fallen prey to stagflation due to the “fickleness” of President Joe Biden, Congress, and the Federal Reserve.

“This is just the beginning. This economic crisis is just beginning, and it’s going to be as bad or worse and as long as it was during the 1970s,” Navarro said to Epoch TV.

The Trump administration’s policies of bringing back supply chains to America and re-shoring manufacturing helped in boosting wages for blue-collar Americans, he pointed out. Restoring Trump-era policies is key to pulling America out from stagflation, Navarro stated.