Just minutes before its release earlier today, in the commentary that is sent out each morning to our clients with the Bespoke Morning Lineup, we noted how it must be August as it was an uncharacteristically quiet Monday morning with a complete absence of tape bombs. No sooner did that email go out than we got one of the worst Empire Manufacturing reports in quite some time. While economists were expecting a modest improvement from July’s reading of 3.86 to 4.50, the actual reading in the headline index fell to -14.92. How bad was that drop? Scanning our Bespoke Economic Indicator Database, we found that it was the largest one-month decline since November 2010, the sixth largest drop on record, the biggest miss relative to expectations since June 2011, and the lowest reading since April 2009. Happy Monday!
While the current conditions component of the August Empire Manufacturing report was abysmal, expectations actually improved. As shown in the top chart below, the index for General Business conditions six months from now actually improved slightly from 27.0 to 33.6. Likewise, as shown in the second chart, although plans for CapEx dropped modestly, plans for Technology Spending increased.
Like the headline reading of the Empire Manufacturing report, the internals of this month’s report were also poor. As shown in the table below, eight out of nine components declined this month, and for New Orders and Shipments those declines were big. In the case of New Orders, it was the lowest reading since November 2010, and for Shipments it was the largest one-month decline since June 2011 and the lowest reading since March 2009. Like the headline index, though, while current conditions were extremely weak, that sentiment is not translating into the outlook. As shown in the right-hand side of the table below, for five out of the nine components shown, expectations six months from now improved.