Manufacturing activity in the mid-Atlantic region tumbled unexpectedly in February, adding to recession concerns.
Goods producers reported a spike in input costs for the first time in 10 months, despite a slowdown in company price increases—a sign that margin pressures were worsening.
An index below zero suggests manufacturing activity contracted for the month, while economists polled by Reuters had earlier projected a -7.4 median reading for February.
This is the sixth consecutive negative reading and the lowest since May 2020, and before that, April 2009 during the Great Recession.
Orders and Activity See Declines in February
The measures tracking new orders, shipments, delivery times, and employee headcount throughout the region all fell in February.Data from February showed that activity declined at a much sharper pace compared with January, as 31 percent of polled firms reported worsening business conditions, compared to the 7 percent who gave positive findings.
Most of the survey’s indicators are tempering expectations for growth over the next six months, as the index for future general activity fell to 1.7 in February from 4.9 a month earlier.
Around 29 percent of the firms questioned expect an increase in activity, while 27 percent anticipate a decline.
Demand for goods also saw a sudden decline in the latest report this month.
The new orders index fell to -13.6 in February from -10.9 in January, while the shipments index declined to 8.7 from 11.1.
The employment index dropped to 5.1 from 10.9, but most companies still reported steady employment levels.
The unfilled orders index climbed to -17.0 from -19.2, as a reduction in backlogs still continues.
Prices Expected to Increase
The survey’s two price indexes, which are closely watched inflation indicators by the Federal Reserve, saw some overall price increases, but were still in line with long-run averages.The prices paid index edged up to 26.5 from 24.5, for its first increase since April 2022, while the prices received index fell almost 50 percent to 14.9, for the lowest reading since February 2021.
Meanwhile, the report predicted smaller price increases for American consumers in the next 12 months, compared to the last questionnaire in November, according to the Philly Fed.
Respondents also reported that they expect to impose 4.5 percent price increases on customers into 2024, down from the 4.8 percent from November, and below the 7 percent price increases that were predicted in the past year.
Median producer estimates on the rate of inflation rose 4 percent for the next year, down from the 5 percent forecast in the November survey.
However, manufacturers’ expectations for longer-run consumer inflation over a 10-year horizon dropped to 3 from 4 percent.
Wage increases are also expected to drop to 4.8 percent in the year ahead, down from 5 percent in the November survey.
Several policymakers at the Fed are looking for a reversal in margin trends, as a signal that high inflation rates are continuing to wane.
On Feb. 1, the central bank raised borrowing rates by 25 basis-points to between 4.50 and 4.75 percent.
Fed Chairman Jerome Powell indicated after the policy meeting, that further rate increases are to be expected, since inflation still remains well above its 2 percent annual target.
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