The City that Never Sleeps


  • In May’s Philly Fed Mfg survey, future delivery times flipped to -4.0 after averaging 7.5 in the last year vs current delivery times spiking to a record 41.5; the spread is now at a record low -45.5, flagging an inflection point given the region’s status as the nation’s chemicals hub
  • Current backlogs and future employment also rose in May to be at or near record highs, signs that refute the Fed’s transitory inflation narrative; however, at 25.6 current inventories rose to their third highest reading on record, which could help bring relief if the trend holds
  • Per the American Chemistry Council, global chemical production declined for the first time since last June; though the headline print is still up 18.1% YoY on a three-month moving average basis, production grew in Africa, the Middle East, and Asia, but was weak elsewhere


It wasn’t Studio 54. It was the river. The fall of the Iberian Union in 1641 was accompanied by Spain losing the reserve currency status it had enjoyed for 111 years. In its place rose the Netherlands as the Dutch East India Company came to dominate global trade. From these 17th century origins, a thriving city was to become a powerhouse. The fuel that drove this commercial coming of age was the East River and its port. By the 1860s, South Street Seaport was operating 24 hours a day, seven days a week giving birth to the nickname, “The City that Never Sleeps.” Even as the financial district at the tip of Manhattan came to dominate the city’s economy and trading hubs fanned out alongside the expansion of a nation, pioneering urban renewal preserved the Seaport’s place in history. The dual blows of the September 11th attack and Hurricane Sandy proved to be temporary and Lower Manhattan is now the fastest growing neighborhood in the city with the Freedom Tower standing tall as a beacon to the free world.

Today’s Feather is being penned at the Seaport and we are happy to report that for the first time in the past three trips, the vibe is back, that energy that so personifies the city that slumbers no more in the post-pandemic era. We would add that witnessing Wednesday’s Bitcoin drama from this perch was eye-opening. It’s one thing to know cryptocurrencies are a modern-day change agent. It’s quite another to see shell-shocked individual investors at the end of a treacherous trading day who’d been told and believed that there was no such thing as down in price.

In the spirit of recognizing that change can and will happen, we were intrigued to study the entrails of Thursday morning’s release of May’s Philadelphia Fed manufacturing survey. We always put more emphasis on the Philly Fed because the region is the U.S. chemicals hub. And chemicals occupy the starting gate position in the supply chain; they lead the industrial complex. As you see in today’s left chart, delivery times are at an inflection point. Focus on the green bars, the difference between future and current delivery times. After averaging 7.5 in the prior 12 months, future delivery times flipped into the red, at -4.0 (blue line). Current delivery times (red line) spiked in the opposite direction to a record 41.5 in data back to 1968. That pushed the spread between the two to a record low -45.5, flagging an inflection point in the cycle.

Per QI’s Dr. Gates, “This change starts a process that could find its way to other areas of the manufacturing sector. Put simply, the Philly creates ripple effects.” Score another point for Team Transitory.

The righthand chart speaks to the Fed’s true bogeyman – labor costs, which represent 60% of a company’s cost structure. May’s run-up in current backlogs (yellow line) and future employment (purple line), a.k.a. job openings, scream that companies are struggling to meet stronger demand and build more future supply. Given the former is at a record high and the latter just shy of its peak print, they amount to unequivocal strikes refuting the transitory narrative.

On the other, other hand, what’s not pictured is another nascent signal of a turn in the disrupted supply chain. At 25.6, current inventories rose to the third highest reading on record in May. Gates adds, “A surge in the inventory cycle, if successful, would also yield additional supply to help bring into better balance the pricing pressures in the supply chain.”

At the risk of repeating ourselves, one month does not make a trend. We’re more than aware. The counterargument is that it’s never been this difficult to read the tea leaves given the hyper-volatility in the data reflecting the absoluteness of the shutdowns and re-openings.

That said, we did note that global chemical production took its first breather since last June, according to data collected and tabulated by the American Chemistry Council (ACC). Granted, headline production is still up 18.1% year-over-year on a three-month moving average basis. Parsed out by geography, output grew in Africa and the Middle East and the Asia-Pacific region and was weak elsewhere.

The bottom line is there is no bottom line. We’re in a wait-and-see mode with some of the data suggesting a turn and some are warning of the stickiness the Fed is banking on not manifesting.

As for our current coordinates at the Seaport, given the increase in traffic and honking horns and bustling restaurants, we are none too surprised at Tuesday’s early May read on the service sector via the Federal Reserve Bank of New York — business activity rose at a “record-setting pace.” The survey’s headline increased by nine points to 38.8. Is the city fully back? We’ll say it’s well on its way given the report noted that, “Just over half of respondents reported that conditions improved over the month, while 12% said that conditions worsened.” Given how eerily quiet it’s been and the predictions that the city would never bounce back, we’ll take this as bona fide great news. Happy Friday!


Posted in Daily Feather.