The U.S. Empire State index dropped to a -24.6 reading in October, following the September decline to -7.41. While the various components of the report were quite weak, one jumps out: The capital expenditure plans index moderated to 6.10 in October from 16.09, which unwinds the modest gains over the past two months and brings this measure to a new cycle-low. The drop raises the risk that businesses will indeed post the feared pullback in investment spending in the fourth quarter, following what appears to be a turn in the durable goods, factory goods, and nonresidential construction spending data starting in the middle of the third quarter.
Manufacturing activity is one of the economic numbers the NBER looks at when they are determining whether or not a recession has occurred. Note the Empire state number (the gray line) has been weak all year.
Also from Business Week:
The U.S. PPI report, with its 0.4% September headline drop but surprisingly firm 0.4% core (excluding food and energy prices) increase, revealed a year-over-year headline gain at the expected 8.7% from 9.6%, while the core year-over-year rate popped to 4.0% from 3.6%. The headline year-over-year rate is still well above what was the 26-year high of 7.4% as recently as January, hence showing how far the commodity price reversal still needs to go to reverse the price surge of the past year.
While the chart looks terrifying, I'm expecting it to moderate over the coming months. Input prices -- commodities in general -- are dropping like a stone right now. In addition, manufacturing activity is clearly slowing indicating a drop in demand. I'm expecting this chart to break its upward move sometime in the next 3-6 months.
