Here is a recent article from our Steel Market Update newsletter:

With the recent price increases from Severstal and AK Steel, many would suspect the manufacturing sector to be strengthening. Federal Reserve Bank reports on manufacturing activity and the Institute of Supply Management (ISM) are saying the opposite.

According to The Federal Reserve Bank of Philadelphia, Chicago, & Richmond, manufacturing activity decreased for the month of April/ May and is at its lowest expansion rate since the fourth quarter 2010.

The Richmond Fed Manufacturing Survey shows an unexpected slow down in manufacturing activity for the month of May. The manufacturing activity index dropped 16 points from 10 to -6. The Federal Reserve Bank of Richmond release stated “The index of overall activity was pushed into negative territory by weak readings for shipments and new orders, while employment growth held steady. Other indicators suggested additional softness. District contacts reported that capacity utilization turned negative and backlogs fell further, while delivery times grew more slowly.”

The Philadelphia Fed general economic index fell 3.9 points in May to its weakest reading since October 2010. The Federal Reserve Bank of Philadelphia news release stated “According to respondents to the May Business Outlook Survey, the region’s manufacturing sector grew, but at a slower pace this month. Most of the survey’s broad indicators fell but continued to signal overall expansion. A majority of firms continued to cite input price pressures and a sizable share of firms reported higher prices for their own manufactured goods again this month. Indicators for future activity fell back sharply this month but continued to suggest that firms expect the current expansion in manufacturing to continue over the next six months.”

The Chicago Fed National Activity Index (CFNAI) fell from +0.32 in March to -0.45 in April to its weakest reading since August 2010. This is the first negative reading since December 2010. The Chicago Federal Reserve Bank news release stated “April’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. ... Production-related indicators made a contribution of –0.16 to the index in April, down sharply from +0.31 in March. Manufacturing production decreased 0.4 percent in April after rising for nine consecutive months, and manufacturing capacity utilization declined to 74.4 percent in April from 74.8 percent in March. Parts shortages that resulted from the earthquakes in Japan contributed to a decline in motor vehicle and parts production.”

The ISM report released at the beginning of May showed an overall decrease for the month of April, however the manufacturing sector is said to be slowly growing. New orders fell 1.6 points to 61.7, and production fell 5.2 points to 61.7 in April.

Sources: The Federal Reserve Bank of Philadelphia, Chicago, & Richmond

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