Expectations for the Empire State Manufacturing report were for a continuation of last month’s strength. Instead, the report disappointed with a dip to barely above contraction.

The Empire State Survey is the first of the Fed regional surveys that come out each month.

Let’s take a look at the report vs. the Econoday Consensus estimate of +5.00.


The first anecdotal report on the factory sector for the month of July is not very promising as the Empire State index barely held in the plus column, at 0.55 vs 6.01 in June and minus 9.02 in May. New orders, after jumping to 10.90 in June, are down 1.82 in this month’s report. This combined with yet another contraction for backlogs, at minus 12.09, do not point to strength ahead for other readings. Employment is one of these readings and, after coming in at zero last month, is at minus 4.40. The workweek is also negative as are inventories which continue to contract. Price data are mixed, showing steady energy-related pressure for inputs but no life for selling prices. The factory sector has been up and down this year on a trend that is dead flat. Watch for the industrial production report coming up this morning at 9:15 a.m. ET. It will offer the first definitive data on the factory sector for the month of June.

Recent History

The Empire State index has been trying to get into the air, posting a plus 6.01 in June for the third positive reading in four months. Forecasters see more of the same for July, at a consensus plus 5.00. New orders came in at a strong 10.90 in June which points to general strength through the July report. This report will offer the first anecdotal look at the immediate effects, if any, from Brexit on the U.S. factory sector. Of special interest will be the 6-month outlook which, at 34.84, was at its best level of the year in June.

6-Month Outlook

Empire State 2016-07-15

Why anyone would care about the 6-month outlook is nearly beyond comprehension. It has been ridiculously optimistic for something like forever. It’s only possible use is as a contrarian indicator. At major lows when the 6-month outlook hits negative, bottoms are at hand.

As for the idea “New orders came in at a strong 10.90 in June which points to general strength through the July report“, well… No.

One month bounces don’t point to anything.

Mike “Mish” Shedlock