Fed Manufacturing Indexes not supporting a strong recovery

Will this data continue to fall? It may depend on whether crude oil remains at elevated levels.

Energy 5

The Fed Manufacturing Indexes show the level of general business activity each month from around the country.  Below are the results for each of the regional Fed Manufacturing Indexes released for May:

                                                Actual                   Expected             Last

NY Empire State               -11.6                        17                           24.6

Philadelphia                       2.6                          16                           17.6

Richmond                           -9                            12                           14

Kansas                                19                           23                           28

Dallas (May 31st)               ?                              0.3                          1.1

Many of the firms that participated in the surveys said that supply chain issues and higher costs were still a problem.  In the New York region, shipments fell at the fastest pace since early in the pandemic.  The Philadelphia Index fell to its lowest level in 2 years.

Next week the US will release the ISM Manufacturing PMI for May.  Expectations are for 55.3 vs 55.4 in April.  The April reading was the lowest since July 2020.  This reading will tell if the trend lower in manufacturing is continuing or if the drop has stalled.  Watch for comments regarding supply chain issues and price pressures.

The price of Crude Oil hasn’t helped manufacturers keep their costs low over the last several months.  Price had already been elevated in the mid-90s in February when Russia invaded Ukraine.  However, it then skyrocketed to 129.42 on March 8th.  Crude Oil then pulled back and tested support at the breakout level several times near 95.79.  The support level held, and price began moving higher once again.  Currently, price is testing recent highs and the 61.8% Fibonacci retracement level from the highs of March 8th to the lows of April 11th, near 115.50.

20220526 usoil daily

Source: Tradingview, Stone X

On a 240-minute timeframe, Crude Oil has been trading in a large channel between 92.96 and 116.61 since March 9th.  Currently, price is just below a confluence of resistance at the highs of May 17th and the above-mentioned 61.8% Fibonacci retracement level near 115.50.  Horizontal resistance crosses slightly higher at 116.61.  If price break above there, the next resistance levels are the 127.2% and the 161.8% Fibonacci extensions from the highs of May 17th to the lows of May 19th at 118.37 and 121.98, respectively.  Horizontal support is at 111.91, then the May 19th lows at 105.09. Below there, price can fall to the low of May 12th at 102.64.

20220526 usoil 240

Source: Tradingview, Stone X

Is manufacturing slowing down growth in the US economy? The recent Fed Manufacturing Indexes seem to be pointing in that direction.  Will this data continue to fall?  It may depend on whether crude oil remains at elevated levels, or even moves higher!


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