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Tuesday, September 15, 2015 1:17 PM

Shocking Weakness in Empire State Manufacturing Report

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Last month we reported "Out of the Blue" Plunge in New York Region Manufacturing; Optimism Persists

As expected in this corner, there was absolutely no reason to be optimistic about manufacturing. Nonetheless, economists expected a snap-back.

The Bloomberg Consensus Estimate for the Empire State Manufacturing Index was -0.50, up from the August plunge to -14.92. The economists were off by a mile.


The shocking weakness in August was no fluke as the Empire State index came in far below expectations for September, at minus 14.67. Next only to August's minus 14.92, September's reading is the weakest of the recovery, since April 2009. And, unfortunately, judging by new orders, activity in October may prove to be just as weak. New orders are deeply negative this month, at minus 12.91 vs minus 15.70 in August and the fourth straight negative reading. And manufacturers in the New York region won't be able to turn to backlogs which are extending their long run of contraction at minus 8.25.

Searching for positives in this report is difficult. Negative signs sweep components including shipments, at minus 7.98 following August's minus 13.79. If extended to national data, these results point to trouble for third-quarter GDP. Employment is at minus 6.19 which is the first negative reading since all the way back in January 2013. The workweek, reflecting the weakness in shipments, is down very steeply at minus 10.31. Price data show outright contraction for finished goods at minus 5.15 -- the first negative reading since November 2013. And rounding things out is a 10 point loss in the 6-month outlook to 23.21 which is the weakest since, once again, January 2013.

Recent History Of This Indicator

The Empire State manufacturing index is expected to bounce back in September, to a consensus minus 0.50 which would indicate only slight month-to-month contraction vs August's extremely deep contraction of minus 14.92. Focus will be on new orders which, at minus 15.70 in August, posted its weakest reading in 5 years.
Empire State Survey

Let's tune into the New York Fed Survey for further details.
The September 2015 Empire State Manufacturing Survey indicates that business activity declined for a second consecutive month for New York manufacturers. The headline general business conditions index remained well below zero at -14.7. As in August, declines were reported for both orders and shipments, with the new orders index coming in at -12.9 and the shipments index registering -8.0. The inventories index slipped a point to -18.5, indicating a continuing drop in inventory levels. Price indexes pointed to a small increase in input prices and a small decline in selling prices. Labor market indicators suggested that both employment levels and hours worked contracted. Indexes for the six-month outlook were generally lower than last month, suggesting that optimism about future conditions waned.
Mike "Mish" Shedlock

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