Monday, June 15, 2009

Empire State Manufacturing Survey More Deeply Negative…

The Empire State Index is one of the components of the larger Manufacturing ISM number which also includes data from the Philadelphia Fed Survey. For the month of June, the consensus was that the Empire State Index would improve from -4.6 to -2.0. What we got instead was a -9.4 print!

Here’s Econoday’s attempt to point out the positive:
The decline in the Empire State's general business conditions index deepened in June to -9.41 vs. -4.55 in May, but reflects a decline in shipments which fell to -4.84 from 1.29. New orders, which point to future shipments, were roughly unchanged at -8.15 from -9.01 -- which is about the best news to be found in the report's readings for current conditions. Month-to-month contraction in unfilled orders is steady at -10.34 vs. -10.23 with the rate of destocking picking up a bit to -25.29 vs. -21.59. Contraction in employment is deep at -21.84, but shows a bit of an improvement from -23.86 in May and is noticeably better from April's -28.09. Prices paid continues to contract month-to-month but at a slower pace, at -5.75 vs. -11.36 in a mild reflection of rising energy and commodity prices.

Future conditions actually offer good news as companies look for improvement ahead, with the 6-month outlook for general business conditions up 4 points to 47.81. They also see employment rising, with a reading of 10.34 vs. 9.09.

But actual improvement won't be evident until current new orders pick up and destocking comes to an end. Still, readings in this report are far better than they were in March and, like other surveys, do suggest that the deepest part of the manufacturing recession has passed.

Market Consensus Before Announcement
The Empire State manufacturing index improved to minus 4.6 in May from minus 14.7 in April. The shipments index actually showed a month-to-month increase, coming in above the breakeven level with a 1.3 reading. But looking ahead, the news was not all on the upside. The new orders index fell back to minus 9.0 in May from minus 3.9 the month before, suggesting a fallback in June for the overall index.

Note on this chart that it doesn’t move in a straight line – nothing does. Those who have been smoking on greenshoots were trying to make a trend that simply doesn’t exist. Just look at how long this index has been negative. That shows a contracting economy, not an expanding one - interpreting it differently is simply delusional.

Sorry, but it’s just plain old tough to turn that weed into a greenshoot! Let’s face it… we don’t manufacture hardly anything in America of value and manufacturing is not going to spring back, certainly not with the rule of law breaking down. Who is going to put their capital to work in America when the President, the Fed, and Congress can, and will, just change the rules of the game? No one, that’s who. That’s why you won’t see any new auto manufacturers sprout up – any capital looking for a place to manufacture anything simply won’t be looking to do it in America.

Too bad, this Empire Manufacturing Index has me in a New York state of mind…

Billy Joel – New York State of Mind: