The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated in June. The general business conditions index slipped below zero for the first time since November of 2010, falling twenty points to -7.8. The new orders and shipments indexes also posted steep declines and fell below zero. The index for number of employees dropped fifteen points to 10.2. The indexes for both prices paid and prices received were positive but lower than last month, suggesting that increases in input prices and selling prices had slowed. Although future indexes were generally above zero, thy were well below last month's levels, indicating that the level of optimism about the six-month outlook had deteriorated significantly.
The index dropped hard at the end of last year, only to rebound fairly quickly. However, unlike the end of last year, there has been a broad-based drop across a variety of regional manufacturing surveys. In addition, the future expectation number also dropped, telling us that survey participants are becoming more concerned about the future.
However, consider this from the industrial production release:
Industrial production edged up 0.1 percent in May, the second consecutive month with little or no gain. Revisions to total industrial production in months before May were small. In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent in May and edged down 0.1 percent in April; the decrease in April in part reflected production lost because of tornadoes in the South at the end of the month. Outside of manufacturing, the output of mines increased 0.5 percent in May, while the output of utilities fell 2.8 percent. At 93.0 percent of its 2007 average, total industrial production in May was 3.4 percent above its year-earlier level. Capacity utilization for total industry was flat at 76.7 percent, a rate 3.7 percentage points below its average from 1972 to 2010.Note the fairly extreme impact of Japan's earthquake, and, to a lesser extent, the weather in the midwest. There is further evidence that the Japanese situation is contributing to the slowdown: Japanese exports have dropped sharply, as have US imports from Japan.
On Tuesday, I wrote the following about overall manufacturing data:
The above charts point to a manufacturing slowdown. We've seen overall industrial production and capacity utilization slow their rise. In addition, several regional fed manufacturing surveys have slowed as well, and the latest ISM print showed a severe drop.There is a manufacturing slowdown taking place. That leads to the following question: is this a temporary or permanent situation? As mentioned above, the Japanese earthquake had a strong negative impact. However, China has recently raised its reserve requirements again, India has raised rates again, the Greek situation is still hurting the EU region and the latest OECD leading indicators point to slower growth.
Right now, the breadth of the data indicates the slowdown is permanent.
