The second most important insight into the nation’s manufacturing sector was released this morning and the results were better than expected, though that sentence is a little misleading. Manufacturing has been in a serious funk since June of last year, with the Philly Fed Index coming in at a two year low of -31.3 last month. Remember that two years ago, the world was entirely shut down. Today’s report was anticipated to show a 30% rebound of -19.8. But what we got is a reading of -10.3, which is like a 70% course reversal. Great news for those of us who don’t have the skills to make all our own goods and need to buy stuff that other people have produced.
Unfortunately I think there’s more to the story than a rebounding observation this morning. The below graph correlates the Philadelphia Fed Index with economic activity for the last 50+ years. The gray bars are periods of recession. Notice anything? There hasn’t been a single incident of negative manufacturing sentiment without a recession. Just maybe we escape this time, but it’s doubtful. Plan accordingly.