US: NY Fed index falls back into contraction

In June, the NY Empire State manufacturing index unexpectedly fell back into contraction. The headline index plunged from 11.88 to -7.79, while the consensus was looking for a marginal increase. The details confirm the bleak picture as new orders (-3.61 from 17.19), shipments (-8.02 from 25.75), delivery time (-3.06 from 2.15) and average workweek (-2.04 from 23.66) fell into negative territory and inventories (1.02 from 10.75), unfilled orders (0 from 9.68) and number of employees (10.20 from 24.73) dropped sharply too. Upward price pressures eased somewhat as prices paid dropped from 69.89 to 56.12 and prices received fell from 27.96 to 11.22. Finally, also the forward looking index weakened significantly falling from 52.69 to 22.45. This is another awful figure from the US manufacturing sector, raising fears that growth is slowing sharply. Until now, the NY Fed index remained at relatively high levels compared to other business confidence indicators, which might indicate that NY Fed index had to do some catching up. It will be interesting to see whether today’s Philly Fed will be able to regain some ground, suggesting that weakness was only temporary.

US CPI inflation continued to surprise on the upside of expectations in May. Consumer prices rose by 0.2% M/M to an annual level of 3.6% Y/Y, while the consensus was looking for a more moderate increase (to 3.4% Y/Y). The breakdown shows that lower prices for energy (-1.0% M/M) and transportation (-0.3% M/M) were more than offset by higher prices for housing (0.2% M/M), food & beverages (0.4% M/M), apparel (1.2% M/M), medical care (0.2% M/M), recreation (0.3% M/M) and education, communication (0.1% M/M). As a result, also core CPI inflation surprised on the upside of expectations, rising by 0.3% Y/Y to 1.5% Y/Y the biggest monthly gain in five years, while the consensus was looking for a more moderate increase. It’s disappointing that CPI inflation continued to increase sharply, even as energy prices dropped in May. Even more surprising is the strong uptrend in the core reading, raising expectations that higher energy and commodity prices are filtering through, while economic growth is slowing down. A dangerous combination that may, if it continues, hinder the Fed in its policy of supporting maximally growth.

Industrial production in the US rose less than expected in May, disappointing for a second straight month. Production increased by 0.1%, while an increase by 0.2% M/M was expected. The details are somewhat less pessimistic as manufacturing production rose by 0.4% M/M, due to a sharp increase in machinery (1.7% M/M) and computers & electronics (1.4% M/M) which was however mitigated by a decline in motor vehicles and parts (-1.5% M/M) probably due to the supply disruptions. Utilities dropped sharply (-2.8% M/M), while mining production increased by 0.5% M/M. Capacity utilization surprised on the downside to stabilizing at a downwardly revised 76.7%. Overall however the industrial production data are not so bad especially after the weak survey data of recent. The underlying details indicate that weakness was led by utilities and supply disruptions had a negative impact too, without these factors production would have been rather strong.