Empire State Manufacturing Index Tumbles In June

EPB Macro Research

The Empire State Manufacturing Index (ESMI), a survey questionnaire sent to roughly 200 manufacturing executives in New York state each month, posted the largest monthly decline on record, falling to a reading of -8.6 for the month of June. 

Empire State Monthly Change
The ESMI recorded the largest monthly decline on record, falling 26 points.

The drop in the ESMI indicates that business activity took a sharp downturn in June in New York state, following the current trend of decelerating economic growth that has been apparent since early 2018. 

Empire State Index
ESMI is in a cyclical downturn along with the rest of the US economy.

One of the more leading components to the ESMI questionnaire is the reading on new orders. The new orders component to the ESMI also plunged in June to a reading of -12. 

Empire state manufacturing index new orders
ESMI new orders tumble to a reading of -12.

The ESMI surveys both current conditions and future conditions. Adding to the overall disappointing results, the future indicator on capital expenditures fell sharply which casts doubt that a revival in capex spending is around the corner. 

ESMI Capex
ESMI capex index falls to a reading of 10.5 in June.

An index that I compose myself includes the future new orders component to the ESMI as well as four other regional Federal Reserve surveys of future new orders including the Richmond Fed, Philly Fed, Kansas Fed, and Dallas Fed. 

The updated reading on the EPB Macro Research future new orders composite index confirms the cyclical downturn that has been ongoing since early 2018 both domestically and internationally. 

Composite Future New Ordres Index
The EPB Macro Research composite index of future new orders declines further in June.

While each regional Federal Reserve survey holds interesting information, the data is more of a confirming signal to the trend in economic growth and inflation identified by more leading economic indicators. While the Philly Fed index is updated on Thursday, and a few more data points come out this week, all eyes will be on the two-day FOMC meeting that starts on Tuesday with the highly anticipated policy announcement on Wednesday. 

Will the Federal Reserve cut interest rates this week, wait until July or hold out even further until September? 

Currently, the market-based odds via fed funds futures suggest the highest probability outcome is a rate cut in July. 


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