- by New Deal democrat
One of the things I used to harp on was that many forecasters make the mistake of simply taking an existing trend and projecting it forward. Often it is paired with the idea of “all things being equal,” i.e., that there won’t be countertrends in other sectors of the economy. This is one of the big reasons I have relentlessly updated my “weekly high frequency indicators” for about the last 15 years - because although they can be noisy, it is where you will first pick up a change in trend.
One prime recent example of this was when I noticed late last year that the regional Fed manufacturing indicators were improving - despite the “Liberation Day” tariffs and the general chaos coming out of Washington. It appeared that manufacturers had found a modus vivendi and had adapted to the new environment.
And that is what we continued to see this morning, both with the Empire State Manufacturing Survey and the Industrial Production report.
I used to call Industrial Production “the King of Coincident Indicators,” but with the shrinking of manufacturing as a share of the US economy to about 25%, that is no longer the case. Nevertheless, it is an important coincident indicator, with the emphasis on *coincident.* It doesn’t tell us where we are going, but is an important signpost about where we *are.*
For the past six months or so, the general trend in manufacturing production had been rangebound, contrasted with a sharp increase of likely AI-related spending in utilities. There was an important change this month, as manufacturing (red in the graph below) broke out of that range to the upside, increasing 0.6% for the month, while the more noisy utility production (gold, right scale) increased 1.9%, driving total production (blue) to a 0.7% increase and a new post-pandemic high:
Similarly, both the coincident headline number (blue) in the Empire State Manufacturing Survey and the leading new orders component (red) increased to new 4+ year highs at 19.6 and 22.7, respectively:
Just one month and just one regional survey, but the new orders subindex has been positive every month but one since last October, and has broken out to the upside in the last two months.
Employment in this regional survey (blue) has also been positive for the past few months. The big problem - and this has extended to virtually all the regional surveys, both in manufacturing and services - is on the inflation side. Both increases in prices received (orange) and even moreso prices paid (red) have turned extremely widespread, with new highs this month not seen since the summer of 2022, and close to their post-pandemic highs:
So, the message from this morning’s reports is mixed: manufacturing has been picking up, but the already bad inflation appears to be worsening.
