So what’s the state of U.S. manufacturing? Dueling Federal Reserve indexes for the New York and Philadelphia areas countered each other last week during a period that was generally light on economic reports.
Early in the week the Federal Reserve Bank of New York said its Empire State Manufacturing Index, which is based on a monthly survey of manufacturers, dropped to -1 in May from a reading of 5.02 in April. It was the first time the index has fallen below zero since Donald Trump was elected president last November.
The New York Fed’s index has declined sharply since March, when it stood at 16.4 and optimism was high among manufacturers that Trump and the Republican-controlled Congress soon would take steps to improve the national economy.
The New York Fed’s new-orders index dropped by 11.4 points to -4.4 in May, and that was its lowest level in a year. An unfilled-orders index fell by 16.1 points to -3.7.
"We have been expecting some cooling in the manufacturing sector following a solid start to the year, but if the Empire State survey’s orders index proves to be a reliable forward-looking indicator, the slowdown could be more severe than we had been anticipating," J.P. Morgan economist Daniel Silver said in a research note that Reuters quoted in a story about the index.
On Thursday the Federal Reserve Bank of Philadelphia issued a much more positive reading from its survey of the factory sector in the Mid-Atlantic region. The Philadelphia Fed Manufacturing Index rose sharply to 38.8 in May from 22 in April. The highest recent peak for the index was 43.3 in February.
MarketWatch said the May reading was much better than economists’ forecast of 19.6. Any reading above zero in the New York and Philadelphia indexes indicates improving conditions for manufacturing.
Separately the Federal Reserve System said last week that industrial production rose in April at the fastest rate since February of 2014. Production was up 1 percent from March; economists were predicting an 0.4 percent gain.
Jim O’Sullivan, chief economist at High Frequency Economics, told MarketWatch that manufacturing began the second quarter by rising 4.8 percent at an annual rate from the first-quarter average, but Paul Ashworth, chief economist at Capital Economics, questioned whether April’s performance is sustainable.
On Thursday The Conference Board said its Leading Economic Index rose 0.3 percent in April to 126.9 after also improving in February and March.
“The recent trend in the U.S. LEI, led by the positive outlook of consumers and financial markets, continues to point to a growing economy, perhaps even a cyclical pickup,” Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said in a statement.
“First quarter’s weak GDP growth is likely a temporary hiccup as the economy returns to its long-term trend of about 2 percent. While the majority of leading indicators have been contributing positively in recent months, housing permits, followed by average workweek in manufacturing, have been the sources of weakness among the U.S. LEI components.”
Reuters said the rise in the Philadelphia Fed index, a drop in new applications for jobless benefits and a decline in the number of Americans on unemployment rolls to a more than 28-year low support the case for the Fed raising interest rates at its meeting in June.
The Labor Department said initial claims for state unemployment benefits fell by 4,000 to a seasonally adjusted 232,000 for the week that ended May 13. The number of people still receiving benefits after an initial week of aid fell by 22,000 to 1.9 million for the week that ended May 6. That was the lowest level since November 1988.
However, Reuters also said a recent downward trend in the financial markets could deter the Fed if the situation does not improve. President Trump’s woes shook the markets last week. They closed higher on Thursday and Friday, but the Dow Jones industrial average and the S&P 500 index each lost 0.4 percent for the week and the Nasdaq composite index was 0.6 percent lower.
"Based on ... how the U.S. political system works, President Trump was never going to be able to legislate as boldly, and unilaterally, as some rhetoric suggested," James Athey, senior investment manager at Aberdeen Asset Management in London, told Reuters. "Global growth is picking up in the background, and everything suggests that the Fed will stick to its hiking plan."
Some of last week’s most important economic reports came from the housing industry.
The Commerce Department said housing starts slipped by 2.6 percent to an annual pace of 1.17 million in April. They were 0.7 percent higher than in April 2016. Building permits fell by 2.5 percent to a pace of 1.23 million, 5.7 percent higher than last April.
“It’s a little bit of a concern, but these numbers do bounce around,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla., told Bloomberg. “The overall trend is still higher, and the backdrop for housing is still favorable.”
Brown also said warmer weather earlier in the year “may have pulled some activity forward. So we’ve got to take these numbers with a grain of salt. It’s only one month.”
One bright spot was that construction of single-family homes rose 0.4 percent, to a rate of 835,000, from 832,000 the prior month.
Housing will also highlight this week’s economic reports. Today the Commerce Department will release its report on new-home sales for April. They are forecast to be at a seasonally adjusted annual rate of 615,000, down from 621,000 in March.
On Wednesday, the National Association of Realtors will report on home resales for April and that figure is also expected to be lower. The anticipated seasonally adjusted annual rate is 5.63 million, down from 5.71 million in March.
On Friday economy watchers will see the April report on durable goods orders (the forecast is for a decline of 1.4 percent) and the University of Michigan’s final Consumer Sentiment Index for May.
The index is expected to hold steady with its mid-month reading of 97.7, maintaining a post-election trend of improved public confidence in the economy.