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Recap: Regional Surveys of Manufacturing for December 2018 all turn lower

The five Fed District Bank surveys of manufacturing are in and the final readings for December point to a broad downturn in activity in December after moderate-to-robust levels for the headline indexes for most of 2018. The tone of the regional data suggests the ISM Manufacturing Index may be in for a downside surprise when it is released at 10:00 ET on Thursday, January 3.

Correlations across surveys are strongest for the Richmond, Philadelphia, and Dallas indexes. Richmond and Dallas had particularly sharp declines. Philadelphia is at less than half of what it was two months ago. The Richmond Manufacturing Index is composite index of three components, and the Philadelphia and Dallas Indexes are of respondents’ perceptions of conditions. The Kansas City index is a diffusion index and the New York number is an index of sentiment.

The details across reports are not as consistent as the headline, but overall it appears that new orders are resetting to a lower level, inventories are building a bit, supplier deliveries are experiencing fewer delays, and shipments are catching up to backlogged orders. Whether this is a single month’s pause after a long string of hectic readings, or if the manufacturing sector is moderating remains to be seen. An ISM Manufacturing Index somewhere in the mid-50’s is not a bad level in the historical context, but it would be a disappointment relative to over a year’s worth of activity.

Comparing the calculation for an equivalent to the ISM Manufacturing Index – using the five components most like those in the national report – does not alter the impression that ISM report could well be down in December. Here the Philadelphia and Richmond reports have the best correlation.

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