Piggybacking off of another contractionary reading in the Empire Fed survey yesterday, the neighboring Philly Fed’s Manufacturing survey also saw its headline reading print a negative number for June.  The index for General Business Conditions has fallen sharply over the past three months, now having shed 30.7 points in that time.  This month was the smallest month-over-month drop of those months, though, with the index falling from a barely expansionary reading of 2.6 in May to -3.3. Despite the small drop, that is still the first negative reading since May 2020. As for expectations, this month also saw the index fall into contractionary territory, a first since December 2008.

Whereas the Empire Fed report had some silver linings with pretty mixed breadth, this report saw large and broad declines across nearly all categories.  Multiple month-over-month moves ranked in the bottom few percentiles of all monthly changes on record in data going all the way back to 1968.  There were also three indices (excluding the headline number) that fell from expansion into contraction.

Following up on a retail sales report yesterday that showed the US consumer has cooled off, regional Fed reports are also showing decelerating demand; perhaps even more dramatically so.  The Philly Fed’s New Orders index not only fell into contraction and the weakest levels since the spring of 2020, but the 34.5 point decline month over month ranks in the bottom 1% of all monthly moves on record.  In fact, that move was large enough to bring the index from the top quartile of its historical range all the way down to the bottom decile.  Shipments and Unfilled Orders did not see drops down to quite as extreme levels, but each one went from the 96th percentile to 35th percentile in just one month.  Again, their month-over-month declines were some of the largest on record.

Expectations are in even worse shape with similarly large declines. New Orders expectations not only saw the first negative reading since 2008, but at -7.4 it is at the lowest level since 1995. Unfilled Orders expectations have been negative for some time now meaning firms have been expecting to unwind massive backlogs built up during the pandemic due in part to supply chain disruptions. But considering the inflow of New Orders is and is expected to continue declining, Unfilled Orders expectations are at the lowest level since the start of 1974.

As we noted yesterday with the Empire Fed Manufacturing report, the decline in unfilled orders is both bad and good. With regard to the former, it is bad because it appears to in part be due to cooling off of demand. But on the bright side, it also appears to be thanks to massive improvements in supply chains.  Not only did the current conditions index for Delivery Times fall sharply in June, but expectations have completely collapsed bringing it to a record low.

Another welcome sign of the report was cooling inflation as fewer respondents reported higher Prices Paid and Prices Received.  Both of these readings have plateaued in recent months alongside expectations.

Employment metrics were mixed this month with the Number of Employees rebounding slightly after a big drop the prior month.  Expectations, on the other hand, saw a massive 18.7 point decline.  Not only was that one of the biggest declines on record but it follows two other sizeable declines in April and May. That indicates the region’s firms are expecting that hiring will moderate significantly in the coming months.  Meanwhile, the Average Workweek has been pulling back with current conditions still at a historically healthy level. Click here to learn more about Bespoke’s premium stock market research service.

More hawkish monetary policy and the S&P 500 hitting the bear market threshold have given sentiment plenty of reason to turn lower, and that’s exactly what has happened. After reaching a short-term high of 32% only two weeks ago, the percentage of respondents to the AAII survey considering themselves bullish has fallen back below 20% this week.  That may not be as extreme of reading as those in the mid-teens from back in April, but, it is still a historically low reading and in the bottom 2% of all weeks going back to the start of the survey in 1987.

While bullish sentiment has declined, this week’s 1.6 percentage point decline was actually much smaller than the 11 percentage point drop last week.  An even bigger decline occurred for those reporting neutral sentiment.  That reading fell 9.9 percentage points from a recent high of 32.1%. Now at 22.2%, the percentage of neutral respondents is back down to the lowest level since the start of May.

With both bullish and neutral sentiment falling, the bearish camp picked up the difference.  Heading into this week, bearish sentiment was already elevated at 46.9%.  The 11.4 percentage point bump this week means that well over half of respondents are now bearish with the current reading just 1.1 percentage points shy of the 59.4% high from the end of April. That ranks as the eleventh highest reading of all weeks on record.

That also means the percentage of bears outweighs bulls by an astounding 38.9 percentage points and is the lowest reading since the last week of April.

Not only do bears outweigh bulls by a large margin, but it has also been a historically long length of time that this has been the case.  Smoothing out the reading by taking a four-week moving average of the bull-bear spread, the average has been below -10 (in other words on average over a four-week span bearish sentiment has been at least 10 percentage points higher than bullish sentiment) for 21 straight weeks.  That surpassed another long 18-week streak in 2020 and is now only five weeks short of the record stretch of 26 weeks in the early 1990s.

Not only has the AAII survey showed souring sentiment, but so too have the weekly NAAIM Exposure Index and the Investors Intelligence surveys. This week, the NAAIM index showed investment managers only have 32.2% long equity exposure. Meanwhile, the Investors Intelligence survey saw the most negative bull-bear spread in a month.  Normalizing each of these three sentiment indicators, the average reading is now 1.28 standard deviations from the historical norm. That is not as bad as last month, but it remains a historically pessimistic reading on sentiment.  Click here to learn more about Bespoke’s premium stock market research service.

Jobless claims have been trending higher off of multi-decade lows, indicating a moderating labor market.  This week, initial claims would have gone unchanged week over week at 229K if it were not for a modest upward revision to 232K to last week’s number.  In other words, claims were little changed this week as they continue to gradually head higher.  At these levels, claims remain at the high end of the range from the few years prior to the pandemic.

On a non-seasonally adjusted basis, claims have begun to experience the typical upward swing for this point of the year and that is likely to continue over the next month and change.  NSA claims topped 200K this week for the first time since the last week of April which is right in line with the readings from the comparable weeks of the year of 2018 and 2019.

Continuing claims are lagged an additional week to initial claims but this reading has also been making its way off the lows. Granted, the move off the lows for continuing claims has been much more modest than initial claims (only 6K for continuing claims versus 66K for initial). Seasonally adjusted continuing claims rose for the second week in a row this week to 1.312 million which is only the highest level in a month.  Click here to learn more about Bespoke’s premium stock market research service.