Peak Manufacturing?

The capacity to utilization rate rose from 73.4% to 74.4%, but we aren’t near overcapacity. Manufacturing was impacted by the semiconductor shortage. Auto manufacturing was up 2.8% monthly. Many auto companies are constrained by the semi shortage. Mining was up 5.7% because of oil. Utilities were down 11.4% because of warm weather. It will be interesting to see how close manufacturing and industrial production get to their pre-pandemic levels in April. If they spike severely, we could be close to the hard data peak especially in rate of change terms.

It Doesn’t Get Much Better Than This

We are either at the peak or very close to the peak in regional Fed data. The Empire Fed manufacturing general business conditions index rose from 17.4 to 26.3. That’s the highest reading since October 2017. The new orders index rose 17.8 points which was the highest in at least 5 years. Inflation is roaring. The prices paid and prices received indexes were up 10.3 and 10.7 points to 74.7 and 34.9. As we mentioned, this isn’t reflected in the CPI reading (although April’s CPI will be stronger than March’s).

The Philly Fed index spiked to its highest level in nearly 50 years in April. That explains why the combination of these two Fed indexes is the highest since at least 2001. The chart above shows the manufacturing PMI is projected to be 62 (ISM PMI was above this combo last month). We are undoubtedly near the peak for the cycle.

Specifically, the Philly Fed diffusion index rose from 44.5 to 50.2. Only 8.2% of firms saw a decrease in activity. There is still a lot of inflation. The prices paid and prices received indexes were 69.1 (down 3.5) and 34.5 (up 4.3). Only 2.3% of firms saw a decline in prices paid and just 1.3% had a decrease in prices received. Expectations were extremely optimistic. The index rose from 59.1 to 66.6. 71% of firms expected an improvement in business conditions in 6 months and 4.4% expected them to get worse. It can’t get much better than that.

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