The big drop in inventories was a big story from the GDP report. The thinking was that if inventories were dropping then people would have to replenish inventories, thereby increasing domestic production.
From the New York Fed:
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to deteriorate in April, but at a much slower pace than in recent months. The general business conditions index climbed 24 points from its March record low, to -14.7. The new orders index shot up 41 points to a reading just below zero, and the shipments index rose 25 points, also reaching a level near zero. The inventories index continued to fall, hitting a record low -36.0. The indexes for both prices paid and prices received remained negative. The index for number of employees, while negative, improved in April, but the average workweek index fell. Future indexes were much improved, with the future general business conditions, new orders, and shipments indexes rising sharply to levels not seen since September of last year. The capital spending and technology spending indexes remained below zero, although they were considerably above last month’s levels.
The New York Fed's report directly confirms the overall theory -- inventories are dropping. As a result, new orders are leading to an increase in shipments.
The latest news from Chicago is encouraging:
The rate of descent is definitely slowing in the Chicago area where the purchasers' index jumped nearly 10 points to 40.1, still sub-50 to indicate contraction but nevertheless a big gain. There's improvement across the report led importantly by new orders which jumped more than 11 points to 42.1. Backlog orders also showed less month-to-month deterioration, at 36.9 vs. March's 21.3. The Chicago report draws its respondents from across industries whether manufacturing or non-manufacturing. Order readings from the ISM had been mixed to improving in recent months and today's results point to solid improvement for both ISM reports.Here's the accompanying chart:
But the Phily Fed's survey isn't that positive. Here's the chart for new orders:
And their shipments index is decreasing:
So -- we have two indexes (New York Fed and Chicago ) that gives us some hope but one other (Philadelphia) that doesn't.
