If the 35.4 point rise in the New York Fed’s manufacturing general business conditions index to 10.8 in April raised hopes of a rebound for the factory sector, the index’s counterpart in the Philadelphia Fed manufacturing business outlook survey dashed them. The Philadelphia general business conditions index is down 8.1 points to minus 31.3 in April. This is the lowest since minus 43.2 in May 2020 during the early pandemic, and minus 34.7 in March 2009 when the Great Recession was winding down.
It’s reasonable to put more weight on the behavior of the Philadelphia index which has a slightly better correlation (0.753) with the ISM manufacturing index than the New York measure which is somewhat weaker (0.713). However, there are three more regional Fed surveys of manufacturing to come, and each of these has a better correlation with the ISM report.
It should be pointed out that the Philadelphia-ISM equivalent index (a composite of components used by the ISM) has the strongest correlation (0.806) with the ISM. In April, the Philadelphia equivalent index is up 2.6 points to 42.7 which points to ongoing weakness for the factory sector, but with activity firming from the prior month. On the other hand, the New York-equivalent with a less solid correlation (0.772) is up 10.4 points to 54.9, which suggests a rebound in activity. The ISM manufacturing index was at 46.3 in March and has been at or below the 50-mark since October 2022. Historically the threshold for the factory sector to be in recession is 42.8. It looks like if manufacturing isn’t technically in a recession, it remains soft with little sign of an immediate turnaround.
