Empire Fed Contraction Streak
In a fairly light data slate this morning, the NY Fed released it’s monthly regional manufacturing survey results. The headline reading showed a minor drop down to -6.6. While down 0.6 points month over month, it was a modestly smaller decline than the expected drop to -7.6. Despite that better-than-expected reading, the still negative index would indicate that activity in the region’s manufacturing sector continues to contract. As shown in the second chart below, July marks the eighth straight month of negative readings and matches another 8-month streak from late 2015 through March 2016. The NY Fed survey began in 2001, and the only longer streak was 17 months during the Financial Crisis.
Under the hood, breadth in this month’s report was slightly positive with six indices rising and four declining month-over-month. A small handful of those moves were large as well. For example, unfilled orders moved into contraction after experiencing a significant decline of 12.2 points. Inventories similarly saw a bottom quartile month-over-month drop from expansionary to contractionary readings. Overall, most categories sit in contraction and are at the low end of their historical ranges.
As previously mentioned, the headline index has been in contraction for a long time. Playing into that has been a bad run for new orders. As shown below, the new orders index came in at its highest level since last September but is still negative as it has been for the past ten months making it the longest such streak on record.
Elsewhere in the report, this month’s survey showed mixed results regarding the labor market. For starters, the index reflecting the number of employees is near its weakest levels of the post-pandemic era. However, the average workweek picked up dramatically. The 9.8-point month-over-month increase in July ranks in the top decile of monthly increases leaving the index at its highest level since October. While the current conditions index has perked up, the 6-month expectations index is another story, falling to the lowest level since August 2022.
In addition to negative labor market readings, capital expenditure expectations also remain weak and just barely in expansionary territory. Current readings are in the 5th percentile historically.
Finally, we would note that the price indices are no longer consistent with rapidly rising inflation. Prices Paid rose to 26.5 which is a point below the historical median. Meanwhile, prices received dropped to 6.1. Outside of last July, that would make for the lowest reading since October 2020.
