Bottom Falls Out With Shocking Drop In Empire Survey

I suppose I’m supposed to call it a “shocker.” Because that’d generate the most reader interest. So, that’s what I did.

I’ll confess to not being especially shocked, though. Empire manufacturing printed a wild downside miss for August, data out Monday showed, but “miss” is relative to forecasts, which are just guesses. Regional Fed surveys can be volatile, and in the current environment, nobody knows much of anything.

With that, behold one of the largest MoM declines on the Empire Fed gauge in history, a 42-point plunge that took the headline general business conditions index down to -31.3 (figure below).

That was the lowest since the immediate aftermath of the initial pandemic lockdowns. Outside of the pandemic months and the financial crisis, it was the worst headline print in history.

One way to describe the August vintage of the NY Fed survey is to say we’re crashing back to normality. Although the read-through for growth is plainly poor, prices paid receded all the way to 55.5 (the gauge was 86.4 in April) and for the first time in two years, delivering times didn’t lengthen.

Of course, this is all indicative of rapidly waning demand. Crashes generally aren’t desirable, even when they’re necessary. We want controlled demolitions. A 36-point drop in new orders coupled with a 50-point plunge in shipments appeared to bode especially ill. Both indexes registered among their lowest prints on record (figure below).

The employment gauge fell and the forward-looking index suggested firms’ six-month outlook is muted.

On the bright side, the ongoing decline in the prices index was consistent with other evidence of reduced pipeline pressure (e.g., ISM prices and slower PPI inflation), and there was some sunshine in indexes for forward-looking activity and hiring.

That said, and all “volatile series” disclaimers notwithstanding, August’s vintage of the Empire survey was bad. Whatever happens tomorrow, firms aren’t feeling especially good about today. Period.