After low readings in April, the Manufacturing Business Outlook Survey in the United States rose in May. All key indicators such as new orders, shipment, employment, and general activity recovered from the April’s 40-year low.
Compiled by the Federal Reserve Bank of Philadelphia, the data offers a glimpse into the manufacturing activity in the Third Federal Reserve District – which is a manufacturing intensive one. It represents a bellwether for the entire manufacturing industry across the United States in terms of employment, prices paid and received, delivering times, inventories, shipments, working hours, unfilled orders.
Interpreting the May Philly Fed Data
The survey, also known as the Philly Fed, asks business managers in the sector to list the annual percentage change with respect to questions referring to the firm and to the US customer. Then, it compares the previous with the actual conditions, and the outcome offers a glimpse into the manufacturing sector’s health.
The outcome reflects the current and future manufacturing activity. While both are important, investors should be aware that the data for current activity is lagging, while future manufacturing activity reflects the short-term perspective of the manufacturing sector.
So far In May, current indicators remain well into the negative territory. However, they bounced from long-term lows, with the total current shipment index, for example, increasing by 44 points. Also, while the manufacturing employment index continued to decrease overall, the current employment index increased 31 points to -15.3, as nearly 9% of the firms reported higher employment.
The message of the report is a pretty clear one – contraction continues, albeit at a slower pace. The one silver lining is that six months expectations rose to 49/7, the best level since December 2017.
Also interesting is the fact that firms expect their own prices to rise slower than inflation. For monetary policy makers, it means that the Fed will see further downside pressure on inflation, as the pace of disinflation is likely to continue into the future.
All in all, most future indicators remain elevated, reflecting optimism about growth over the next six months. While manufacturing activity continued weakening this month, growth is expected to pick up over a horizon of six months. As always, investors take the current data with a pinch of salt, while focusing on the longer-term perspective.