Dismal regional manufacturing readings sound the alarm that business activity is slowing as summer approaches. The latest bad news came Monday from Texas, where the Dallas Federal Reserve survey of the sector’s outlook for June pointed to a substantial level of contraction fueled by a slump in the rate of order growth that could be the harbinger- runner of bad things to come. “Orders are trending lower, and with the Federal Reserve continuing to tighten, we believe the six-month recession outlook is strong,” a papermaking executive said in a survey response. “Current orders and projections confirm this.” Similar sentiments came elsewhere. “Orders have slowed slightly. Inflation fears are worse than inflation,” said a respondent from printing and related manufacturing. A computer and electronics manufacturing executive noted “clear signs of the onset of early cooling” as “orders in the quarter slowed to a trickle.” It was all part of an ugly report that saw the overall business activity index plunge to -17.7, which is the percentage difference between companies experiencing expansion versus contraction. It was down 10.4 percentage points from the May reading and the worst reading since May 2020, or the early days of the pandemic crisis. Worse still, the company’s outlook gauge has fallen from -10 to -20.2, indicating that executives don’t see better days ahead. Order growth rate fell 10.9 points to -16.2, new orders fell 10.5 points to -7.3 and unfilled orders fell 12.9 points to -8, 8. Only three indexes recorded positive month-on-month changes, with delivery time rising to 19.9, an improvement of 15.6 percentage points since May. However, the employment index fell 5.7 percentage points to 15.2, still indicating expansion, but at a slowing pace. Grim results loom The Texas reading is part of a trend of weakness in the Fed’s regional manufacturing indexes. Philadelphia’s index for June fell 6 percentage points to -3.3, also the worst level since May 2020. The Richmond District’s latest reading for May tumbled to -9 over this months against 14 in April. New York’s Empire Manufacturing Survey actually showed improvement in June, rising 10 points, but was still in negative territory at -1.2. Along with the weakness comes growing concerns about whether the United States is heading into a recession just a year after posting its fastest growth since 1984. GDP fell at an annualized rate of 1.5% in the first quarter, and the Atlanta Fed’s GDPNow tracker points to growth of just 0.3% in the second quarter, revised up slightly on Monday from a previous reading of zero. Nationally, the latest ISM manufacturing survey showed an expansion in May, with a reading of 56.1 which was nonetheless the second lowest level since September 2020. Deutsche Bank, which was the first forecaster of Wall Street to say it sees a recession coming, said recently that while the current state of the US economy probably doesn’t meet that definition, it is getting closer. “In summary, the set of macroeconomic indicators is consistent with a descent into recession but does not signal that we are already there,” Deutsche chief strategist Binky Chadha and others said in a note last week. There was yet another bad omen for the economy on Monday – a survey by JPMorgan Chase which showed just 19% of chief executives of mid-market companies are optimistic about the national economy. It’s a historic low in a survey that dates back 12 years.
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