The slowdown in manufacturing activity, seen in reports from the Federal Reserve Banks of New York and Philadelphia, was confirmed by a Richmond Fed survey and showed that manufacturing activity in the mid-Atlantic region fell in May.
The manufacturing activity index for the Fifth Region fell 23 points from a positive 14 to minus nine in April, the lowest reading since May 2020, when much of the economy was still in turmoil since the start of the pandemic and lockdowns.
Falling into negative territory is unexpected. Analysts polled by Econoday believe the index will remain stable at 14. Negative index readings indicate a decline in activity during the month.
The Fifth District covers most of the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and West Virginia.
The share of new orders and shipment index for the month fell into negative territory, pointing to a decline in demand. New orders fell from six to minus 16 in April. Shipments fell from plus 17 to minus 14.
The employment index, which is one-third of the composite index, fell from 22 to 8 in April. This remains in positive territory, showing that wage rates continue to rise, albeit at a slower pace than at the start of the year.
The scale of business conditions goes deeper into negative territory. A measure of optimism about conditions over the next six months also fell below negative territory.
Inflation indicators showed a significant increase in the price level, including an acceleration in prices set by producers. The highway price index showed that prices rose 15.13% year-on-year, compared to an increase of 11.83% in April and 11.05% in March. The resulting price gauge showed prices rose 9.57 percent, up from 8.93 percent achieved in April and 9.16 percent in March. These figures show that inflation may not have taken a hit in March yet.
The inflation outlook also worsened. Manufacturers say they expect to pay 7.29% more for materials over the 12 months, up from 6.09% in April. Expectations for the prices received rose to 5.30 percent from 5.29 percent last month.
The Richmond Fed report follows reports from the New York Fed and Philadelphia Fed that turned out to be worse than expected. A survey of the manufacturing sector conducted in New York state by the Federal Reserve Bank of New York showed that business activity was falling. The General Business Climate Index fell 36.2 points to minus 11.6 in May. New orders were rejected and fell into negative territory. Shipments fell the fastest since the start of the pandemic and were also negative. Indices for both prices paid and received prices fell but remained high, suggesting that strong inflationary pressure remains despite lower orders.
Production in the Philadelphia area rose only modestly in May and slowed to a halt at its weakest gain in two years, as a survey by the Philadelphia Federal Reserve Bank showed last Thursday. The current overall activity index fell from 17.6 in April to 2.6 in May, the lowest reading since May 2020. Economists polled by Econoday estimate 16.1. However, unlike New York and Richmond, demand indicators are positive. The new orders index rose to 22.1 from 17.8 in May. The shipping index rose to 35.3 from 19.1 in April.
Inflationary pressure remained very high, according to the Philadelphia Fed report. The highway price index fell from 84.6 to 78.9. The purchased price index decreased from 55.0 to 51.7. Companies were asked a specific question this month to forecast future price inflation. A year later, the price estimate rose from 5.5% to 6.5% in the February survey, when this question was last asked. The annual inflation forecast for the next ten years rose from 3 percent to 3.5 percent. These figures show that inflation expectations have shifted due to continued high inflation this year.
A separate S&P Global study showed an overall slowdown in economic growth in May, but not a direct recession. The S&P Express Services Index fell to 53.5 from 55.6 in May. The manufacturing index also fell from 59.2 to 57.5, the lowest level in three months. Both turned out worse than expected. However, any reading above 50 indicates broadening. The composite index fell to 53.8, which is lower than the lower forecast range.
There is some positive news about supply chains in the Richmond Fed report. Supplier lead times and backlogs fell in May from record levels earlier this year. According to a survey by the Federal Reserve Bank of Philadelphia, delivery times have remained virtually unchanged and the number of back orders has increased. A New York survey showed that supplier lead times are increasing.
The Kansas City Federal Reserve is expected to report on manufacturing activity in its region in May.
Source: Breitbart
