Manufacturing slowing in New York and Philly Fed surveys

By Theresa Sheehan, Econoday Economist
May 19, 2022

The May readings for the general business conditions indexes in the New York (Empire State) and Philadelphia Fed’s respective surveys of manufacturing are signaling weaker activity in the month. As the two earliest of the regional surveys for the factory sector these are suggestive of the direction of the ISM manufacturing index when that number is released. However, both the New York and Philadelphia numbers are diffusion indexes and not compiled from components like the ISM index. These are more of a measure of sentiment among the regions’ survey respondents. The correlations of the New York index (0.722) and Philadelphia (0.755) with the ISM index are decent, but the weakest among the five surveys from Fed district banks.

The New York Fed index plunged 32.6 points to minus 11.6 in May from 24.6 in April and continued its pattern of seesawing since the start of the year. This isn’t as bad as the depths of the pandemic-induced recession, but it is consistent with an uneven performance for the region. The Philadelphia index fell 15.0 points to 2.6 in May, its lowest reading since minus 43.1 in May 2020. The decline from 17.6 in April indicates a substantial loss of activity from the prior month.

The respective future conditions indexes for New York and Philadelphia are consistent with an outlook for slower activity six months from now, although expansion is indicated. In a highly uncertain environment with concerns that Fed monetary policy to fight inflation could bring on a recession, and big unknowns regarding the global economy and supply chain, that it clings to even mild expansion is a positive indication.