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Recent weakness in regional Fed surveys is pointing to downside risks for the upcoming ISM manufacturing print.
- The very soft print for the Richmond Fed index (-9 versus +10 consensus), caps off a poor run for Fed US business surveys in recent weeks. The Empire manufacturing survey fell to -11.6 versus 15 expected, while the Philly Fed survey fell to 2.6 versus 15.0 forecast.
- These readings come ahead of the closely watched ISM manufacturing print for May, due for release on June 1.
- A simple model for the ISM, using the Philly Fed and Richmond Fed survey readings as inputs, is presented in the chart below. The model fit is around 70% using the past decade of data.
- Interestingly, using the latest Philly Fed and Richmond Fed readings gives an ISM estimate for May of 50.4, which would be the lowest rate of headline expansion lodged since early 2020.
- There are some important caveats. As the chart below highlights, the regional Fed survey estimate for the ISM has generally been underestimating the ISM print in the past 18 months.
- Still, a fresh downside surprise for the ISM reading would only add to concerns surrounding the US/global economic outlook.
Fig 1: US Manufacturing ISM & Regional Fed Surveys
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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