Empire State Manufacturing Index Crashes After Back to Back Gains

The Empire State Manufacturing Index crashed to -9.02 after a brief two-month rally.

March was barely positive at +0.62 with April at +9.56.

This month, the Bloomberg Econoday consensus estimate was 7.0 in a range of 2.50 to 11.20.

Highlights

What little momentum there was in the New York manufacturing sector is fizzling, based on the Empire State index which came in much weaker-than-expected, at minus 9.02 in the May report to end two lonely looking gains in April and March.

New orders are at minus 5.54, also ending two prior months of gains and rejoining a long run of negative readings going back all last year. Inventories, at minus 7.29, are extending their equally long dismal run of contraction as manufacturers, seeing soft demand ahead, work down their stocks. Employment, at plus 2.08, is up for a second month but just barely while shipments turned lower, to minus 1.94. Selling prices are down, the workweek is down, and delivery times are shortening — all signs of weakness.

This together with the Philly Fed, which are the two most closely watched regional reports, have been showing bursts of life the last few months, in what perhaps are early indications of strength tied to dollar depreciation and lower oil prices. But this report is definitely not among this group and will raise talk of another flat year for manufacturing. The Philly Fed, to be posted Thursday, looks to be a major highlight of the week.

Recent History

The Empire State report showed strength in March and April led by new orders which may be getting a boost from emerging gains for exports, gains tied to this year’s depreciation for the dollar, and less weakness in energy equipment where oil prices have firmed. Shipments also posted gains in March and April and employment popped back over zero. Forecasters see continued expansion with the Econoday consensus at plus 7.00.

Starting August of 2015, the Empire State Index has been negative eight of 10 months with the two exceptions noted above.

The manufacturing recession continues.

Mike “Mish” Shedlock