U.S. Manufacturing Declining - Nomura
Analysts at Nomura explained that the New York Federal Reserve today
reported that the Empire State manufacturing headline index declined to
-9.02 in May from 9.56 in April, falling well below expectations
(Nomura: 8.0, Consensus: 6.5).
"It now seems that the improvement in the index in March and April was probably due to overly optimistic reactions from respondents to the survey to the rally in equity prices and increases in commodity prices at that time. We have seen similar trends in other regional manufacturing surveys as well, with sentiment souring again and converging to the hard manufacturing data, which have consistently indicated that actual activity remains sluggish.
Interestingly, a similar pattern was seen in a series of weaker-than-expected Chinese economic data for April as China’s industrial production, fixed investment and retail sales for the month all decelerated and fell short of market expectations after having rebounding in March.
On the details, the ISM-adjusted Empire State index, which takes the subcomponent indexes into account, also re-entered contraction (sub-50) in May, falling to 48.1 from 51.9 previously. The measures of current activity fell off sharply, with new orders declining to -5.54 from 11.14, shipments falling to -1.94 from 10.17 and unfilled orders dropping to -6.25 from -0.96. The inventories subindex also deteriorated, falling to -7.29 from -4.81, suggesting that the inventory correction may be ongoing in Q2.
Elsewhere, the labor market subindexes moved in opposite directions, with the number of employees’ measure improving slightly to 2.08 from 1.92, but the average workweek subindex dropping off to -8.33 from 1.92, providing another indication of very sluggish factory activity in the NY region in May. The prices subindexes were more negative on net for firms, with the prices paid subindex declining by under 3pts to 16.67, but the prices received subindex decreasing to -3.13 from 2.88. The six-month ahead section of the report was also less optimistic.
Although the sixmonth ahead general business conditions index declined only slightly to 28.48 from 29.40, the key indicators of future business investment declined sharply; 1) the capex subindex fell to 3.13 from 22.12, the lowest since February 2014, and 2) the technology spending subindex declined to 6.25 from 21.15.
The weakness in the expectations section of the report suggests that the rebound in manufacturing in the medium term will likely be tepid.
This Empire State manufacturing survey for May provides further evidence that manufacturing activity has yet to bottom out and will probably remain weak in the medium term.
We will see if April’s industrial production report (scheduled for release tomorrow) and May’s Philadelphia Fed manufacturing survey (scheduled for release on Thursday) tell a similar story."