May brought more negative readings (which signal contraction) reported for manufacturing in the New York and Philadelphia regions. The Empire State Index contracted sharply to -31.8, which was much worse than estimates, while the Philadelphia Fed Index remained in contraction territory for the ninth straight month. These reports suggest that the manufacturing sector is already experiencing recession-like conditions.

Meanwhile, Retail Sales rose 0.4% in April but this was just half of market estimates. Sales increased 0.5% over the last year, which is the lowest growth rate in three years and well below the historical average of 4.8%. After adjusting for inflation, however, the story is far worse. Real retail sales have fallen 4.2% over the last year, marking the sixth consecutive year-over-year decline.

The Conference Board also released their Leading Economic Index (LEI) for April, which was down 0.6%. This latest deterioration followed the 1.2% drop in March and marked the thirteenth consecutive month of declines. The LEI provides an early indication of turning points in the business cycle, reflecting where the economy is heading in the near term. Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, noted that “the Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”