APRIL FED REGIONAL INDICATORS AND A WEAK START TO Q2

Weakness in Economic Indicators Find Way to GDP

U.S. data is showing sustained weakness in manufacturing originally reported here on March 28 in “Economic Strength, Where Is It: European and U.S. Data.”

Overall data for March revealed four Fed regional economic indicators showing declines in new orders, shipments and delivery times. These indicators consisted of the Empire State Index, the Philadelphia Fed Survey, Richmond Fed Manufacturing Index and the Dallas Fed Manufacturing Survey.

Supporting such index results was a fall in U.S. GDP for Q1, 2012 to 2.2% versus a consensus result of 2.5% and a Q4, 2011 number of 3.0%. Current data suggests a mild continuation of the trend down.

Slowing Growth in Regional Fed Data Starts Q2

Notable are the most recent regional data. The Empire State Index last reported on April 16 and showed growth, but with concerning rates of decline.

March results were looking promising by growing from a February number of 19.53 to 20.21 in March. Growth, however, was betrayed by substantial declines in new orders, shipments and unfilled orders. Also notable in March were steep increases on prices paid.

April Empire Index results deflated in growth to a rate of 6.56. That is, the index showed a decline in it growth rate from March to April of 20.21 to 6.56. Accounting for April declines are the same causes witnessed in March; declines in new orders, shipments, unfilled order, etc. Prices paid also remain under pressure.

Philadelphia Fed results reported here last March were similar to Empire’s March numbers. As of the last report on April 19, the numbers look likewise similar. For February of 2012, the index saw 10.2, March witnessed an advance to 12.5, but again betrayed by declines in new orders, shipments, unfilled orders and delivery times, April came in at 8.5. Prices paid and received edged up.

 Kansas City Fed Index , having reported on April 26, is like the above two indicators. The Kansas City Fed Index showed a February result of 13, March of 9 and April at 3. Declines in all months are attributed to new orders, shipments and order backlogs. Most noted is that the Index's production number went from 13 in March to 0 in April.

Add to the regional indicators the Dallas Fed Manufacturing Survey which reported April 30 for April results. Its business activity component fell to -3.4% versus March at 10.8 and February at 17.8. The production side of the survey showed 5.6 for April while March saw 11.1 and February 11.2. Accounting for the steady decline in results is a capacity utilization number that went from 12.3 in March to 1.4% in April. Shipments declined to -0.8 in April v. 8.6 in March. New orders have been near to zero for two months.

Regional Data Suggests Continued Weakness in Industrial Production And Durable Goods

Durable Goods Orders and Industrial Production reports, while lagging the above indicators, support a potential trend. Industrial Production reported on April 17 and had a stalled 0.0% result for March. February was also stalled at 0.0%.

Last increase for the report was January’s gain of .7%, with other previous months generally gaining. Despite the last two months of zero, year over year, results are positive at 3.8%. The big question will be the May 16 report.

The manufacturing component of Industrial Production showed a March decline of -0.2%. Comparing this decline is a February advance of .3% and a January gain of 1.1%.

Where Industrial Production is stalled, Durable goods orders are in decline and have been volatile. Reporting on April 25 for March results, new orders of durable goods showed decline of -4.2%, deeper than analyst expectations of -1.5%. Previously, the indicator showed February at 1.9% and January with -3.5%.

A Couple Pieces of Positive Data

Outlying positive results include April 24 figures for the Richmond Fed Manufacturing Index which grew to 14 in April compared to a March reading of 7. Consensus put the growth number at 8, which was well exceeded. Chicago Purchase Manager Index (PMI), which reported on April 30, has demonstrated numbers above 50, showing sustained growth. April revealed a result of 56.2 on a consensus of 60.8, March saw 62.2 with consensus of 63 and February came in at 64. All showing consistent growth, but April was several points below consensus.

April’s ISM Manufacturing Index also demonstrates sustained numbers above 50, with the April result at 54.8. Customers’ Inventories are at 45.5, but up 1.0, Inventories show 48.5, and down -1.5, while order backlogs reveal 49.5 and are down -3.0.

Bottom Line is That Q2 Could Continue in a Slowing Trend

Overall, the majority of regional Fed business activity indicators show slowing to substantially slowing rates of growth. This trend continued into April, and perhaps amplified in April. Turning negative is the Dallas Fed Manufacturing Survey’s business activity index. Substantially slowing were the Empire State Index and the Kansas City Fed Manufacturing Index.

Comparing these results with Industrial Production numbers being flat at zero for two months as of March, and negative Durable Goods orders, one wonders what drives the countervailing data. A slow start to Q2 could tell of persisting sluggishness.

May numbers will be necessary to determine direction of any trend and extent of strength. Should indicators continue to weaken, the natural question will be what real latitude does the Fed have for speculated QE3.

For now, relaxation in fuel prices and its effect on the Producer Price Index could significantly support renewal of growth.