Regular readers will know that I follow the regional Fed manufacturing surveys in the US for two reasons. The first is that after the GFC, which prompted the need for the US to rebalance to external demand, the PMIs are a key guide to whether any expansion is sustainable. Second, I predicted a run of good data after the September freeze in demand on the debt-ceiling debacle initiated a mini inventory cycle. That means that some portion of the current flush of US growth may prove temporary. At this point, however, a summary of the February regional indexes shows continued strength.
First up was the NY Fed index:
The February Empire State Manufacturing Survey indicates that manufacturing activity in New York State expanded for a third consecutive month. The general business conditions index rose six points to 19.5, its highest level in more than a year. The new orders index, at 9.7, was positive but down slightly, and the shipments index was little changed at 22.8. The prices paid index held steady at 25.9, while the prices received index fell eight points to 15.3, suggesting that selling prices rose at a slower pace. Employment indexes were positive and close to last month’s levels, indicating that employment levels and the average workweek continued to rise at a modest pace. Indexes for the sixmonth outlook, while somewhat lower than last month, remained at fairly high levels, signaling considerable optimism about the future.
The Fed Index was the only one of the regionals to post a better year on year gain than the year before. Next up was the Philadelphia Fed Index:
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged higher from a reading of 7.3 in January to 10.2, its highest level since October. The demand for manufactured goods also showed improvement this month: The new orders index was positive for the fifth consecutive month and increased from 6.9 to 11.7. The shipments index also remained positive and increased 9 points. The indexes for both delivery times and unfilled orders recorded slightly positive readings this month, compared with their negative readings in January.
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Not quite so strong but not bad either and new orders were better than the NY Fed. Next was the Kansas City Fed:
The month-over-month composite index was 13 in February, up from 7 in January and -2 in December, and the highest since last June. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Manufacturing activity increased in both durable and nondurable goods-producing plants, with notable strength in machinery, fabricated metals, and aircraft production. Other month-over-month indexes were mixed in February but remained solid. The production and order backlog indexes moved higher, and the employment index edged up from 9 to 11. In contrast, the shipments and new order indexes fell slightly, and the new orders for exports index dropped from 10 to -7. Both inventory indexes increased.
Again a healthy increase but with some fading leading indicators. On to the Dallas Fed:
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Texas factory activity continued to increase in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.8 to 11.2, suggesting a pickup in the pace of growth.
Other measures of current manufacturing conditions also indicated expansion in February. The new orders index was positive for a second month in a row but fell from 9.5 to 5.8. Similarly, the shipments index moved down from 6.1 to 4.2. Capacity utilization increased further in February; the index edged up from 8.5 to 10.
…Labor market indicators reflected a sharp increase in hiring and longer workweeks. The employment index jumped to 25.2, its highest level since the beginning of 2006. Twenty-nine percent of firms reported hiring new workers, while 4 percent reported layoffs. The hours worked index continued to suggest average workweeks lengthened.
Again, fading leading indicators but good news on employment. Finally, there was last night’s Richmond Fed:
In February, the seasonally adjusted composite index of manufacturing activity—our broadest measure of manufacturing—increased eight points to 20 from January’s reading of 12. Among the index’s components, shipments gained eight points to 25, new orders picked up seven points to finish at 21, and the jobs index moved up nine points to end at 13.
Other indicators also suggested stronger activity. The backlogs index moved into positive territory, picking up eight points to 4 and the capacity utilization indicator advanced four points to finish at 12. Additionally, the delivery times index rose eleven points to 14, while our gauges for inventories were mixed in February. The finished goods inventories index added three points to 12, while the raw materials inventory index lost seven points to end at 11.
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Still below last year but good leading indicators.
So, what do we make in summation? Here’s a useful chart from Calculated Risk suggesting the coming rise in the ISM will be decent but not stellar:
The growth pulse making its way through US manufacturing is weaker than early 2010 or 2011. Given much weaker external conditions and the habit of activity to peak early in the year then diminish (as well as my mini cycle thesis), it will be no surprise to see these indexes weaken henceforth. To avoid that we’ll need to see further evidence of a new virtuous cycle developing in the US. Job creation will need to stay high (which is possible given waning productivity) and/or consumers will need to give up on rebuilding savings.
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On that front we got cross currents last night with the Conference Board’s Consumer Confidence hitting a post 2008 high. From Scotty Barber:
That’s good breakout. But, house prices are still sliding and likely to keep the pressure on US households to save. From Calculated Risk:
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Case Shiller is lagging but this week’s pending home sales were weak and I still don’t buy the housing recovery meme. Sell in May and go away has been the trade for two years running and, at this stage, is shaping as another decent bet.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
