Following very strong readings from the Philly Fed and preliminary Markit PMIs last week, the Dallas Fed’s Manufacturing report released this morning disappointed.  The headline index came in at 7 compared to forecasts of a reading of 12 and last month’s adjusted reading of 10.5. That reading is still consistent with overall growth in the region’s manufacturing sector, but at a slower pace as the index fell to the lowest level since August.

The index for General Business Activity was far from being the only one to fall month over month.  As shown below, breadth in this month’s report was terrible.  Of the 17 different indices for current conditions, 13 fell month over month. That brought several of these readings from the top decile of historical readings down to the middle of their historical ranges. While the pullbacks were significant, only inventories remain in contraction.  Meanwhile, breadth was a little bit better for the indices for future expectations.

One area that saw declines across the board were the indices concerning demand.  As shown below, the indices for New Orders, New Order Growth Rate, Unfilled Orders, and Shipments were all lower in January. All of these are now at the lowest levels since June, or July in the case of order growth rate. These lower readings are still indicative of growth, but at a slower rate.

Just as we have seen in other recent manufacturing reports, survey respondents are reporting price increases.  The index for prices paid rose to a reading of 55 from 50.8 in December.  That is nearly in the top decile of all readings as the index sits at the highest level since April of 2011.  The index for future expectations similarly ticked higher reaching its highest level since March of 2012.

While prices paid were higher, the same sort of acceleration in prices was not observed for prices received.  The index for prices received fell from 19 down to 13.9.  Although lower month over month, that is still around some of the highest levels of the past couple of years.  Additionally, expectations are calling for prices received to follow the path of prices paid.  The index for future prices received rose to the highest level since 2017 which was also in the top 5% of all readings.

Similar to prices received, the current conditions index for wages and benefits fell this month, but the index for future expectations rose much more sharply and to one of the highest readings of the past couple of years. In other words, although price hikes were not observed, they are foreseen on the horizon.  For wages and benefits, that expected uptick comes as hiring continues with the index of employment remaining in expansionary territory.  Additionally, hours worked rose this month from 9.5 to 12.6; the highest in September of 2018.  Click here to view Bespoke’s premium membership options for our best research available.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Alternative Energy

Batteries Hidden Across New York Give the City a Backup Boost by Dimitra Kessenides (Bloomberg)

With disruptive natural disasters on the rise and battery prices on the fall, “microgrid” battery power facilities can be shoehorned in to cities like NYC to provide a backup to the traditional power grid. [Link; soft paywall]

Money Managers Look to Blue Seas for Green Investments by Julie Steinberg and Joe Wallace (WSJ)

As green energy capex scales up, investors are diving into all corners of production to try and make a buck, including owning and financing the ships which build and service offshore windfarms. [Link; paywall]

Chilly This Winter? Cozy Up to the Computer That’s Mining Bitcoin by Sarah E. Needlemen (WSJ)

Bitcoin mining operations are extremely power intensive and as a result of their massive processing activity send off huge amounts of heat. That byproduct is being repurposed to keep pets, vegetables, or even whole houses warm. [Link; paywall]

Housing

The Housing Market Boom Gets Another Boost From Biden by Conor Sen (Bloomberg)

Fiscal stimulus gives households who might not have the chance at owning a home a shot at cobbling together a down payment, with the possibility of reducing student loan burdens another tailwind for home buyers. [Link]

Scholarly Pursuits

The evolution of the Offshore US-Dollar System: past, present and four possible futures by Steffen Murau, Joe Rini, and Armin Haas (Journal of Institutional Economics)

A helpful review and primer of the mechanical foundations of the global financial system, focused on the role of the offshore US dollar market. [Link]

Platform Civics: Facebook in the Local Information Infrastructure by Kjerstin Thorson, Mel Medeiros, Kelley Cotter, Yingying Chen, Kourtnie Rodgers, Arram Bae, and Sevgi Baykaldi (Digital Journalism)

This paper uses quantitative and qualitative methods to identify what happens when Facebook replaces local media, with unsurprisingly toxic results. [Link]

History

What We Found in Robert Caro’s Yellowed Files by Dan Barry (NYT)

An amazing trip through the office of legendary biographer of Robert Moses and LBJ, including a fascinating anecdote about the desk that cured his bad back. [Link]

Investing

Up Is Good. Down Is Bad. by Jason Zweig (CreateSend)

Making the case that much-derided (in professional circles, anyways) traders are in fact pursuing the same sort of strategies that “fancy” quantitative investors do. [Link]

Data Security

Intel says hacker obtained financially sensitive information by Richard Waters (FT)

Hackers were able to access an infographic that was part of Intel’s earning release, forcing the company to publish the whole kit and kaboodle before the market closed. [Link; paywall]

COVID Vaccination

Israel COVID-19 ‘R’ reproduction number dips below 1 in first since vaccine drive (Reuters)

With more than one-quarter of the country vaccinated, the fastest vaccine effort in the world has helped push the previously raging COVID pandemic down in Israel. [Link]

Career Changes

Neuberger Berman’s Segal Is Retiring to Teach High School by Miles Weiss (Bloomberg)

A Neuberger fund manager that has held his seat since 1999 is retiring to pursue a masters in teaching and eventually working as a math teacher in New York. [Link]

Pay Your Lawyers

German online retailer Mytheresa valued at $3bn after US listing by David Carnevali and Sujeet Indap (FT)

Neiman Marcus acquired German online retailer Mytheresa for $200mm back in 2014, and now sits on a an impressive gain after the investment was kept remote from creditors during the company’s bankruptcy. [Link; paywall]

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Have a great weekend!

Of the several strong economic data points to have been released today, perhaps the strongest relative to expectations was the Philadelphia Fed’s monthly survey on the region’s manufacturing sector.  The headline index was expected to rise from 11.1 to 11.8. Instead, it more than doubled expectations rising to 26.5.  That is the highest reading since last February just before the pandemic’s full impact was felt.  Overall, the report showed the region’s manufacturing sector experienced strong growth in January with accelerating growth in demand, prices, and employment.

In the table below, we break down the various sub-indices of the report. Nearly every component experienced a month over month increase that ranks in the top few percentiles of their respective histories.  That also left most indices in the top decile of their historic ranges. That compares to last month in which most readings were far more moderate. Although most indices for current conditions saw impressive readings, the indices for expectations were much more mixed with a larger number falling than rising MoM. Given every one of these indices remains positive, though, the region’s manufacturers still have an overall optimistic outlook.

Of all the sub-indices, the New Orders index saw one of the most significant increases in January rising 28.1 percentage points from a barely expansionary reading of 1.9 to a much stronger reading of 30.  Going back over the past couple of years, the only times this index was higher was in October (32.9) and February (30.7) of last year. That indicates very strong new order growth after a slowdown in December.

Similarly, the index for unfilled orders was the only index in contractionary territory (those below zero) last month, but there was a massive improvement this month as the index surged to a reading of 25.6.  Both the level of the index and the monthly change stand in the top 1% of all readings going back through the history of the survey which began in 1968. The only times the index has been higher was in August of 1972 (26) and January (29.6) and March (45.1) of 1973.  In other words, New Orders remain strong while Unfilled Orders are bouncing back at a historic rate,

While the unfilled orders index reached one of the highest readings on record, the index for Delivery Times actually hit a new record.  The index rose 12.7 points to a record high of 30; surpassing the previous record of 21.3 from October of 2017.  Higher readings in this index indicate that supplier lead times are longer and vice versa for lower readings. That means a historic number of respondents are seeing delays in their supply chains.

Perhaps to get ahead of the growing demand and longer lead times, businesses are also reporting higher inventories.  That index rose to the highest level since September of 2019 which also stands in the top 5% of all readings in the history of the data.

Given the stronger demand and tighter supply lines, prices have also been accelerating. Both Prices Paid and Prices Received experienced some of their largest monthly increases on record after rising 20.5 points in January.  At 45.4, the index for Prices Paid is at its highest level since August of 2018. Those price increases are also getting passed along to customers as the index for Prices Received is at the highest level since February of 1989. These results echo some other hints of more inflationary conditions like the New York Fed’s readings last week and the ISM services and manufacturing report earlier this month. Click here to view Bespoke’s premium membership options for our best research available.