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Factory activity appears to have stabilized after slowing sharply at the start of the year. However, it is premature to expect a significant rebound. Regional Fed surveys released so far this month paint a very mixed picture.
The Empire and Richmond canvasses improved modestly in May, while the Philly and Dallas Fed surveys showed further deterioration in manufacturing activity.
Societe Generale notes:
- Given the earlier pickup in the orders component of the ISM survey and the reported improvement in capital equipment orders for April, we look for a modest (0.9pt) improvement in the ISM diffusion index.
- Our 52.4 forecast would mark the highest level since February. By itself, this is in line with GDP growth of 2.6%. However, the service sector is running at above-normal speeds and should be offsetting much of the manufacturing weakness.
- Combining our manufacturing ISM forecast with our 56.7 projection for the nonmanufacturing index would put the composite ISM index at 56.2 in May, consistent with GDP growth of 3.3%.
