May 24, 2022
In addition to weaker than expected preliminary S&P Global (formerly Markit) PMIs, another weak regional Fed manufacturing index hit the tape this morning. The Richmond Fed’s Manufacturing Composite dropped into contraction in May as the index hit its lowest level in two years. The 23-point month-over-month drop was also the second-largest decline on record behind the 49-point drop in April 2020.
Each regional Fed’s headline manufacturing number differs slightly in composition and the Richmond reading is made using shipments, new orders, and employment as inputs. As shown below, each of those indices experienced historic declines this month causing the massive drop in the composite. Breadth elsewhere in the report was not much better though. Other categories like capacity utilization, order backlogs, and average workweek also pulled back sharply. Meanwhile, expectations for several categories are in the bottom few percentile of their historical ranges going back to the start of the data in the 1990s. Overall, this month’s report showed a massive slowdown in activity that is consistent with other surveys that have come out this month.
Two of the inputs to the composite that also fell into contraction this month were new orders and shipments. New Orders have seen a small handful of larger declines with September of last year being the most recent one. New Orders were also much lower after that decline last fall. As for Shipments, the 31-point month-over-month decline ranks as the second-largest on record next to April 2020 when the index fell a whopping 77 points. While it does not necessarily outweigh the rapid deterioration in demand, one silver lining of the report was a further huge improvement in supply chains. The reading on Vendor Lead Times was sliced in half as the index remains below pre-pandemic levels.
Again, Employment is the third input to the composite and it was the sole input to remain in expansion in May. That being said, it too fell sharply versus the prior month. While that reading indicates lower mid-Atlantic manufacturers are currently net taking on more workers, expectations saw a record decline meaning hiring plans are likely to decelerate significantly in the near future. That is as wage growth has stalled out and the length of the average workweek has been cut.
Finally, in spite of supply chain improvements and weaker demand, prices have continued to rise unabated. Prices paid hit fresh record highs across both current conditions and expectations. Prices received are off-peak but the reading did tick up slightly in May. Click here to learn more about Bespoke’s premium stock market research service.
May 16, 2022
May’s first reading on regional manufacturing activity out of New York showed significant deterioration. The New York Fed’s Empire State Manufacturing survey’s headline index dropped from a solid reading of 24.6 last month down to -11.6 in May. That is only slightly above the low from two months ago that had marked the first significant contraction in activity since the spring of 2020.
Not only are General Business Conditions back into contractionary territory, but the double-digit negative reading sits in the bottom decile of all months on record going back to the start of the index in 2001. That compares to last month’s reading which was just shy of the top decile. Given the total reversal within the historical range, the month-over-month decline of 36.2 points is now the second-largest one-month drop on record behind the 56.7 point decline in April 2020.
Only New Orders and Shipments fell enough to reach contractionary levels this month, but most other categories also saw large month-over-month declines. Expectations similarly saw broad declines, however, the categories that saw the biggest deteriorations in current conditions (General Business Conditions, New Orders, and Shipments) saw improvements in six-month expectations.
As previously mentioned, the most shocking declines were in demand-related categories, namely New Orders and Shipments. These two indices fell by 33.9 and 49.9 points, respectively. For New Orders, that was the third-largest decline on record outside of the 56-point drop in April 2020 and a 43.1-point decline in the wake of September 11, 2001. The only larger decline in Shipments happened, again, in April 2020. Unfilled Orders also fell dramatically, though the month-over-month decline was not as close to a record, and the actual level of the index is still relatively elevated in the top quartile of its historical range. Although more New York area firms reported declines in new orders and shipments, expectations were each higher month-over-month following sharp declines leading into this month’s report.
Perhaps in part due to that slow down in demand, Delivery Times continue to decelerate with the index dropping another 1.6 points. That follows a much larger double-digit decline in April. In what could be either a positive sign as a result of finally alleviated supply chains or a negative sign given slowing demand, responding firms also reported that they expect delivery times to finally decline in six months. That was the first negative reading in expectations since October 2020.
Additionally, inflationary pressures appear to be easing as both indices for Prices Paid and Received declined across current conditions and 6-month expectations. Those declines are only small dents in what have been extremely strong runs over the past two years.
Perhaps the only silver lining in this month’s report was in regards to employment. New York area firms accelerated both net hiring and the average workweek. Again though, expectations were less optimistic as those indices continue to roll over alongside plans for Technology Spending and Capital Expenditures. In other words, the employment situation may have improved in May, but that is not expected to improve dramatically in the months ahead as demand has weakened. Click here to learn more about Bespoke’s premium stock market research service.
Apr 26, 2022
The Richmond Fed’s manufacturing survey was released this morning showing a modest improvement in conditions in the month of April. The headline number rose by a point to 14 which is still in the middle of the pandemic range of readings and the highest level since December.
In spite of the improvement in the composite index—a weighted average of shipments, new orders, and employment—the breadth of this month’s report was negative with over half of the categories declining month over month. Two of those declining categories were new orders and employment which are again inputs for the composite. That means the higher reading of the composite was entirely thanks to the 8-point increase in shipments.
Looking across other areas of the report, expenditures were weaker while inventories are recovering from historic lows. While business conditions are mixed to deteriorating, supply chains are showing signs of improvement as evidenced by the increase in shipments.
While shipments were an area of strength, another input to the composite, new orders, fell 4 points and is back near the middle of its historical range. Expectations, however, experienced a sizeable rebound with that index rising 9 points. While that increase bucks the trend of weak expectations readings relative to current conditions that we have seen in other regional Fed surveys (which we discussed in last night’s Closer), this index’s increase was the exception rather than the rule. As shown in the table above, only a handful of other expectations categories rose month over month with many declines ranking in the bottom decile of monthly moves.
The big increase to shipments left that index at the highest level since last July as backlog of orders are growing at a substantially more modest pace compared to earlier in the pandemic. One likely reason that both of these readings are improving is a coincident improvement in supply chain stress. The index for lead times saw an 8-point decline ranking in the bottom 5% of all monthly moves. That leaves the index one point above the December low of 35.
Employment metrics were mixed this month. The region’s firms are still hiring on a net basis, but hiring has peaked and declined again in April. That was in spite of firms also reporting better availability of workers with in-demand skills as that index rose to the highest level since July 2020. With that being said, the negative number indicates a still insufficient supply of quality talent. Wages, meanwhile, saw one of the larger increases in recent months rising to the highest level since September. The average workweek was unchanged at a healthy level in the top 5% of its historical range, but expectations are calling for declines in hours worked on the horizon. Click here to learn more about Bespoke’s premium stock market research service.
