Goldman: "Sorry, You Can't Blame The Philly Fed Collapse On Japan"

Tyler Durden's picture

The firm, whose only job now as in 2010, is to pave the way for QE "Oliver Twist" 3, pulls one of the crutches used by the depression apologists, and makes the secular decline case that much stronger. To wit: "Weakness in the Philly Fed cannot be obviously explained by
supply-chain disruptions or other special factors, as we argued in
yesterday's US Daily. For example, the latest Beige Book comments on
Philadelphia Fed district manufacturing activity said "declines in
orders broadened from producers of apparel and rubber products to
include producers of electronic equipment and instruments.
Failure to
pass a multiyear transportation infrastructure reauthorization bill and
the ongoing real estate slump were cited by five different manufacturing
sectors as hampering the recovery" (these comments refer to May rather
than June). Slowing in "electronic equipment and instruments" could be
related to supply-chain problems, but otherwise the weakness looks
related to other factors." As to whether this means that the next stimulus is another payroll tax cut as Obama is hoping the republicans will allow, or more 2 Year rate caps, is unclear. What is certain is that the Keynesian monster must be fed.

From Goldman:

MAIN POINTS:

1. The Philadelphia Fed index unexpectedly fell to -7.7 in June from +3.9 in May, mirroring the weakness in the Empire State index reported yesterday. To put this number into context, it is the lowest since May 2009. In the growth slowdown last year, the Philly Fed index reached a low point of -5.6.

2. The sub-indexes of the report also weakened (unlike the ISM, the Philly Fed headline series is not an average of components). The indexes for shipments and employment declined but remained in positive territory. The index for new orders slipped below zero, to -7.6. The worst performing sub-index was the supplier delivery time series, which fell to -20.5 from -2.3 previously. Except for the growth slowdown in 1995, this level has historically been associated with recession. The decline could possibly be due to supply-chain disruptions, but anecdotal commentary and the industry mix in this region do not strongly support this argument (see below). The components for expected activity in six months' time also fell. The six month ahead general activity index fell to +2.5 from +16.6 previously, and the six month ahead capital spending index fell to +12.9 from +23.1.

3. Weakness in the Philly Fed cannot be obviously explained by supply-chain disruptions or other special factors, as we argued in yesterday's US Daily. For example, the latest Beige Book comments on Philadelphia Fed district manufacturing activity said "declines in orders broadened from producers of apparel and rubber products to include producers of electronic equipment and instruments. Failure to pass a multiyear transportation infrastructure reauthorization bill and the ongoing real estate slump were cited by five different manufacturing sectors as hampering the recovery" (these comments refer to May rather than June). Slowing in "electronic equipment and instruments" could be related to supply-chain problems, but otherwise the weakness looks related to other factors.

4. Overall the early-June data (Empire, Philly and jobless claims) point to little improvement in growth from depressed levels in May.

 


As we noted earlier, expect Hatzius to put the nail in the coffin of the US H2 GDP hockeystick (and his own credibility) shortly.