US: Empire State Mfg Survey

Mon Jun 15 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 5.90 4.00 to 8.00 -1.98 3.09

There's no bounce at all in the Empire State manufacturing survey where the headline index sank to minus 1.98 in June, well below Econoday's low-end forecast for 4.00 and the second negative reading in three months that pulls its second quarter average into the negative column at minus 0.03. This report was actually doing much better during the heavy weather and special factors of the first quarter when it averaged 8.21.

And new orders point to greater weakness ahead, at minus 2.12 in June for the third negative reading in four months. Shipments have been strong in this report, at 12.01 in June, but won't stay strong very long given the weakness in orders. The six-month outlook reflects this concern, down nearly 4 points to 25.84 which is the lowest for this reading since February and the second lowest in 2-1/2 years.

Unfilled orders are always weak in this report, at minus 4.81 in today's report which is actually the least negative reading since October last year. And employment does remain in the plus column at 8.65, up from 5.21 in May but well down from their recent peak in March at 18.56. Price readings show little change with output prices showing fractional upward pressure at 0.96 and input prices showing steady and mild pressure at 9.62 vs 9.38 in May which was the lowest reading in nearly 3 years.

The manufacturing sector is supposed to be building up steam, not losing steam. There are no special factors in the second quarter that can be blamed for the loss of momentum. Later this morning the industrial production report will offer definitive indications on national shipments during May. On Thursday, the Philly Fed, which has also been weak, will offer a second early look at conditions in June.

Market Consensus Before Announcement
The Empire State manufacturing survey has been dead in the water in the low single digits, offering every month for each of the last eight months the first indication of what would turn out to be another weak month for manufacturing. The dollar is still strong and exports are still weak, pointing to what is very likely to be another weak Empire State report.

The New York Fed conducts this monthly survey of manufacturers in New York State. Participants from across the state represent a variety of industries. On the first of each month, the same pool of roughly 175 manufacturing executives (usually the CEO or the president) is sent a questionnaire to report the change in an assortment of indicators from the previous month. Respondents also give their views about the likely direction of these same indicators six months ahead.

Investors track economic data like the Empire State Manufacturing Survey to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that won't generate inflationary pressures. The Empire Manufacturing Survey gives a detailed look at New York state's manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on the markets. Some of the Empire State Survey sub-indexes also provide insight on commodity prices and other clues on inflation. The Federal Reserve closely watches this report because when inflation signals are flashing, policymakers can reset the direction of interest rates. As a consequence, the bond market can be highly sensitive to this report. The equity market is also sensitive to this report because it is the first clue on the nation's manufacturing sector, reported in advance of the Philadelphia Fed's business outlook survey.