The New York Fed started off this month’s regional Fed manufacturing indices on a high note rising back into expansionary territory. While the reading is still positive, the neighboring Philly Fed’s index saw a more significant decline this month dropping 7.2 points to 16. That is only slightly above the December low of 15.4 indicating a material deceleration in activity as the index now sits in the middle of its historical range.
Breadth in this month’s report was weak with most current condition categories declining. Expectations were far worse without a single index moving higher and a couple now in the bottom few percentiles of their historical ranges. While lower, most indices remain positive, and those that are negative—Unfilled Orders and Delivery Times—are not necessarily outright negatives as they indicate expectations for alleviation of backlogs and supply chain stress.
Demand slowed in February with the New Orders index facing a 3.7 point decline with a similar decline in the expectations index. While that reading was still above the December low, the Shipments index dropped to the lowest level since August 2020. Unfilled Orders also fell by over 7 points this month, but that leaves the index at a much more elevated reading seeing as the January print was in the top 1% of all months. Expectations are in an entirely different situation, though. The expectations index plummeted 11.3 points to -18.2 which was the lowest level since July 1998. In other words, the region’s firms expect to massively catch up on existing orders in the months ahead.
One likely reason for that optimism is expectations for alleviations in supply chains. Higher readings in the Delivery Times index points to businesses reporting longer lead times. That index remains well above most readings of the past several decades, but it also has peaked and fallen to the lowest level since September. Expectations have outright collapsed to -22.3 which is the lowest reading since October 2008. This month’s decline was also the third-largest one month drop on record.Click here to view Bespoke’s premium membership options.
