If there is an economic indicator that has been especially weak over the last several months it has been the Empire Manufacturing report. Heading into Monday, the report had come in weaker than expected in each of the last four and seven of the last eight months. Additionally, over the last three years the report was weaker than expected 25 times. In other words, the report misses consensus forecasts more than two-thirds of the time. After Monday’s report, you can make it five straight weaker than expected reports. While economists were forecasting a level of 6.00 for June, which would have been up from 3.09, the actual reading came in at -1.98, taking it back into contraction territory. While the negative reading in the headline index is a bummer, this indicator is one of the more volatile ones we track.
Looking ahead to expectations, manufacturers in the NY area also turned less optimistic about business conditions six months from now as that index dropped four points from 29.8 down to 25.8. The lower chart shows plans for Capital Expenditures and plans for Technology spending over the next six months. Both of these components also declined in June. Plans for CapEx dropped to 11.54%, which is the lowest reading since last July. Plans for spending on technology were even weaker and actually fell into negative territory for the first time since June 2013 and only the second time in the current expansion. As shown, both components are also down sharply from their recent highs just a few months ago.
The table below breaks down the June Empire Manufacturing report by each of its subcomponents and shows how each changed over the last month and what expectations are for six months from now. The biggest declines this month were seen in New Orders (+6.0) and Inventories (-5.4) while Delivery Times (+8.5) and Unfilled Orders (6.7) saw the biggest increases. Another bright spot in June’s report was employment as both the average workweek and number of employees saw solid increases. Looking to see where the biggest divergences are between current conditions and expectations, in spite of the big decline in new orders, manufacturers remain very optimistic about new orders in the next six months. On the inflation front, Prices Paid was practically unchanged relative to last month at 9.6. The index for Prices Paid six months from now, however, is all the way up at 24.0. While manufacturers are enjoying the fact that there is little in the way of pricing pressure now, they don’t necessarily expect it to last.