Manufacturing activity in the mid-Atlantic region slowed markedly in May, with a key gauge posting the weakest growth since the early days of the COVID-19 pandemic, according to a survey from the Federal Reserve Bank of Philadelphia released Thursday.
The bank's benchmark manufacturing index unexpectedly slumped to 2.6 in May, a stark drop from the 17.6 recorded in April and well below the expectation for a reading of 16 among economists polled by Refinitiv. It marks the worst reading for the gauge – which covers eastern Pennsylvania, southern New Jersey and Delaware – in two years.
A reading above zero indicates that manufacturing activity expanded during that month.
A gauge measuring inflation and price pressures remained elevated in May near a historical high, but eased somewhat compared with the previous month, the survey shows. The employment index also slowed in May, suggesting that while firms are still onboarding new workers, they are doing so at a slower pace than in previous months.
The overall business outlook for the next six months tumbled to the lowest level since December 2008, at the height of the financial crisis.
There is a growing sense of pessimism on Wall Street over concerns that the Fed may drag the economy into a recession as it seeks to tame inflation, which remained elevated at 8.3% in April. Bank of America, as well as Fannie Mae and Deutsche Bank, are among the Wall Street firms forecasting a downturn in the next two years, along with former Fed Chairman Ben Bernanke.
Economic growth in the U.S. is already slowing. The Bureau of Labor Statistics reported earlier this month that gross domestic product unexpectedly shrank in the first quarter of the year, marking the worst performance since the spring of 2020, when the economy was still deep in the throes of the COVID-induced recession.
Fed Chairman Jerome Powell has acknowledged there could be some "pain associated" with reducing inflation and curbing demand but pushed back against the notion of an impending recession, identifying the labor market and strong consumer spending as bright spots in the economy. Still, he has warned that a soft landing is not assured.
"It will be challenging, it won’t be easy. No one here thinks that it will be easy. Nonetheless, we think there are pathways... for us to get there," Powell said during an interview last week with Marketplace.