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).
Key Quotes:
"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."
