No Recession Warning Now

The manufacturing sector is turning around outside of the weakness catalyzed by the coronavirus and the Boeing 737 Max delay. The Empire Fed index increased 8.1 points to 12.9 as the new orders index was up 15.5 points to 22.1 and the shipments index was up 1.3 points to 18.9. Those readings look like we are back in 2018 when the manufacturing sector was soaring and the ISM PMI was extremely high. The 6-month forward-looking index fell 0.7 to 22.9 as it was positive, but not as great as it was in most of 2018.

The Philly Fed index increased significantly. The general business conditions index was up from 17 to 36.7 which was a 3 year high. This more than tripled estimates for 12, making it the biggest positive surprise ever. The highest estimate was 14.6 which was also easily beat. The new orders index was up from 18.2 to 33.6 which was the best reading since May 2018. Expected business conditions in the next 6 months rose from 38.4 to 45.4 which was the best reading since March 2018. It’s clear the regions covered by the Empire and Philly Fed reports weren’t impacted by the coronavirus or the Boeing delays.

Last month the Philly Fed index also spiked. The index is up 34.3 points in the past 2 months which is the largest 2-month spike since September 1995. In the history of this report, which goes back to 1980, there have only been 2 other instances where the 2-month change was better.

The shipments index was only up from 23.4 to 25.2. Just like in the Empire Fed index, the prices received index rose and the prices paid index fell. Prices received rose from 14.7 to 17.1 and prices paid fell from 22.1 to 16.4. Despite this margin improvement, the number of employees index fell from 19.3 to 9.8.

The expectations category did well. The expected new orders and shipments indexes were up from 41.9 and 42.4 to 54 and 51.9. Even though the expectations index was up, the capex index fell from 32.9 to 29.8. Even though the Empire and Philly Fed indexes spiked, the flash manufacturing PMI fell. We will detail its decline in a future article.

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Gary Anderson 1 month ago Contributor's comment

Stocking shelves is not exactly insuring end demand.