Looking ahead to next week’s beginning of the month economic data release, all eyes will be watching what the data tell us about demand, given that domestic steel prices have been rallying since early December. Including the Dallas manufacturing survey, which was released on Monday January 30, 2023, the 5 Regional Fed surveys (below) always provide insight into what to expect going forward.

To simplify the interpretation, we’ve consolidated all of the readings into the black dashed line. This shows that after November’s slight improvement, December decreased, and January data which was mostly below expectations (corresponding dotted lines) resulted in the deepest monthly contraction since the pandemic. What this tells us is that activity in the manufacturing sector continues to stumble as we start 2023. Looking more closely at the subindex break down, this move lower has been driven by depressed new orders, and backlogs, both under pressure since August. Over the next 6-months, our view is that the Federal reserve and rate decisions will be the most important factor for steel consumption and the domestic economy as a whole. To that, Friday provided further data which suggest we are approaching the peak terminal rate for the FED with PCE Core inflation decelerating further, now for the 3^rd month in a row. While downside risks remain, a continued, steady decline in inflation and a softening labor market, much like we have recently observed, provides a path for a slowdown without a collapse in demand. If this materializes, the reduced levels of domestic production and depressed import volumes could support elevated steel prices.