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Raging Stagflation: Inflation Higher As Empire State Mfg Index Tumbles, Confirms Contraction

Tyler Durden's picture


June brings us much more centrally planned stagflation. CPI increased 0.2% in May, higher than expected 0.1%, and up 3.6% Y/Y. This is the 11th consecutive increase in inflation. And so much for the CPI ex-Food and Energy which came at +0.3% on expectations of 0.2%, up from 0.2% in April: "The index for all items less food and energy increased 0.3 percent in May, its largest increase since July 2008. The indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April. These increases more than offset declines in the indexes for airline fare, tobacco, and personal care." More on the Chairman's failure to rein in inflation in 15 minutes: "The food index rose in May as well. The food at home index repeated its April increase of 0.5 percent as four of the six major grocery store food group indexes increased, with the index for meats, poultry, fish, and eggs rising the most. In contrast, the energy index, which had been rising sharply, declined in May. The gasoline index decreased for the first time since last June, although the index for household energy increased. The upward trend among the 12 month increases of major indexes continued in May. The 12 month change in the all items index, which  was 1.1 percent as recently as November, reached 3.6 percent in May. The energy index has increased 21.5 percent over the last 12 months, the food index has risen 3.5 percent and the index for all items less food and energy has increased 1.5 percent. All of these figures have been rising in recent months." But the real action was in the Empire Manufacturing Index which plunged from 11.88, and forget about expectations of 12.00, printing at -7.79 in June. The contraction is now confirmed. This is the first contraction since November 2010 when QE2 began. Hint: QE3 is coming. Also, the future general business conditions index fell thirty points, reaching 22.5, its lowest level since early 2009. And the kicker: margins continued to collapse as prices paid fell less than prices received. This is what stagflation is pure and simple; it has also been Zero Hedge's keyword of 2011 since January.

From the Empire State Mfg Index:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated in June. The general business conditions index slipped below zero for the fi rst time since November of 2010, falling twenty points to -7.8. The new orders and shipments indexes also posted steep declines and fell below zero. The index for number of employees dropped fifteen points to 10.2. The indexes for  both prices paid and prices received were positive but lower than last month, suggesting that increases in input prices and selling prices had slowed. Although future indexes were generally above zero, they were well below last month’s levels, indicating that the level of optimism  about the six-month outlook had deteriorated significantly.

In June, the general business conditions index fell below zero for the first time since November of 2010, declining a steep twenty points to -7.8. Eighteen percent of respondents—compared with 23 percent in May—reported that conditions had improved over the month, while 25 percent, up from 11 percent last month, reported that conditions had worsened. The new orders index fell twenty-one points to -3.6, and the shipments index tumbled thirty-four points to -8.0. The unfi lled orders index fell to zero. The delivery time index slipped fi ve points to -3.1,  and the inventories index dropped ten points to 1.0.

Level of Optimism Deteriorates Significantly

The six-month outlook was notably less optimistic in June than in May. The future general business conditions index fell thirty points, reaching 22.5, its lowest level since early 2009. While the index was still above zero—an indication that conditions were expected to improve in the months ahead—its June decline represented the second largest drop in the index in the history of the survey. The future new orders index fell thirty-two points to 15.3, and the future shipments index fell twenty-fi ve points to 17.4. The future inventories index retreated thirteen points to -9.2, suggesting that manufacturers expected inventory levels to fall over the next six months. Future price indexes fell but remained positive, implying that price increases were expected, but would occur at a slower pace than was expected last month. The index for expected number of employees fell fourteen points to 6.1, and the future average workweek index fell to -2.0. The capital expenditures index slid four points to 26.5, and the technology spending index dropped fi fteen points to 14.3.

And the kicker: Margins continue to collapse as drop in Priced Paid is smaller than in Prices Received:

Price indexes posted their first declines in several months. The prices paid index fell fourteen points, to 56.1–still a relatively high value, but a sign that price increases were smaller in June than in May. The prices received index retreated seventeen points to 11.2, with the share of respondents that reported an increase in selling prices falling from 33 percent last month to 17 percent this month. Employment indexes were also lower. The index for number of employees remained in positive territory, indicating that employment levels increased, but the index fell fifteen points to 10.2. After reaching a relatively high level last month, the average workweek index tumbled twenty-six points; at -2.0, the index suggested that hours worked fell slightly.


Monthly CPI:



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Wed, 06/15/2011 - 08:51 | 1370507 hugovanderbubble
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Long SRS till my hand hurts...


Short IYR, SHORT RWR....


Banks will need to liquidate 60% of current Reits ,yes or yes....

Wed, 06/15/2011 - 09:29 | 1370628 spongeBOB
spongeBOB's picture

Good luck but make sure you have some tight stops. Last year I shorted the market expecting a crash and got my ass handed to me.

Wed, 06/15/2011 - 08:49 | 1370508 the not so migh...
the not so mighty maximiza's picture

Ben needs the debt ceiling raised now for QEIII.  Expect it done pronto.



Wed, 06/15/2011 - 08:52 | 1370518 hugovanderbubble
hugovanderbubble's picture

Sir imagine u only have one more ammo left...QE3....

would you activate it here or before the sell risky assets( Specially 29-30th July)...Bradley Model.....


I would add QE3 when sp hits 1.100, but of course im not Bernanke...



Wed, 06/15/2011 - 09:00 | 1370532 the not so migh...
the not so mighty maximiza's picture

He is publicly asking for it now.  He is twitching an itching to print money.  He really does look like a junkie.   He wants to start QEIII now before a serious drop i think. Once the downward momentum starts it will be impossible for him to stop.

Wed, 06/15/2011 - 08:59 | 1370536 Quintus
Quintus's picture

The stock market is a LOT less important to the Bernank than the Treasury market.  At the slightest sniff that there is insufficient demand for treasuries the Fed will start QE-ing like there's no tomorrow regardless of what the Russell 2000 is doing.

Now that we know that the $600b in QE2 cash has found a new home overseas and is not sitting in US bank reserves waiting to step in and take over Treasury buying activities from the Fed post QE2, I think it's a fair bet that insufficient Treasury demand will make itself felt sometime around July 2nd - as will QE3.

Wed, 06/15/2011 - 09:02 | 1370542 the not so migh...
the not so mighty maximiza's picture

We will see soon.  I think wealth illusion and perception is the only thing important to him.  401k dumping will make people whiny.

Wed, 06/15/2011 - 09:11 | 1370575 dcb
dcb's picture

don't think I blieve that, but do think that when yeilds suggest deflation they will do more QE. of course that won't help as it will run up fuel and energy to once more it chokes off the economy. I have now seen ben do this three times and he will do it again. the man is a disaster

Wed, 06/15/2011 - 09:14 | 1370592 francis_sawyer
francis_sawyer's picture

Per Rosie & the Grossmeister, yields will NOT suggest deflation...

Operation Twist 2 will decree that future recessions will be outlawed via shrewd policy maneuvers...

Someday we'll wake up in a Mad Max world, but the Bernank & Krugman will still be sitting there behind the fortress of academia proving to people that there IS NO RECESSION...

Better get long NFLX before it's too late [sarc off]

Wed, 06/15/2011 - 09:21 | 1370601 Cdad
Cdad's picture

Question:  What is the half life of "low volatility" on a stock sporting an 80 P/E during a world wide solvency crisis?

Wed, 06/15/2011 - 09:22 | 1370614 augie
augie's picture

Three months. The same time frame as any apple product obsolescence.

Wed, 06/15/2011 - 08:49 | 1370521 cossack55
cossack55's picture

Yes, yes, yes.  Must have more debt, need more debt, we all want and need more debt. The US wants to remain in ever increasing debt forever.  DEBT, DEBT, GO DEBT. 

We love slavery

we love slavery,

we love slavery,

deep down in our hearts,

yes, deep, deep, down, down

Deep down in our hearts

(to the tune of We love Ho Chi Minh)

Wed, 06/15/2011 - 08:50 | 1370512 lead salad
lead salad's picture


Wed, 06/15/2011 - 09:02 | 1370552 RichyRoo
RichyRoo's picture

+1 scooby snack

Wed, 06/15/2011 - 08:49 | 1370522 Cdad
Cdad's picture

And the kicker: margins continued to collapse as prices paid fell less than prices received.


And earnings last quarter were peak earnings, and now patently absurd "upside earnings guidance" is in desperate need of "revision."  This, of course, provides problems for previously thought "historically cheap valuations."

Wed, 06/15/2011 - 08:51 | 1370526 sbenard
sbenard's picture

Thanks for this, Tyler. Almost universally bad news! The truth hurts!

Wed, 06/15/2011 - 08:55 | 1370527 fiftybagger
fiftybagger's picture

Bitcoins are deflating:


The Bitcoin Channel

Wed, 06/15/2011 - 10:23 | 1370825 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

I don't think I'll ever get over it - I never got a chance to short them...

If anyone knows a way please let me know; I'd still love to do it...

Wed, 06/15/2011 - 08:54 | 1370534 Mae Kadoodie
Mae Kadoodie's picture

Stag-patch?  Soft-Stag?  Trans-Stag?

Wed, 06/15/2011 - 09:06 | 1370558 djsmps
djsmps's picture


Wed, 06/15/2011 - 08:59 | 1370535 Franken_Stein
Franken_Stein's picture


Long live the bankers !

The salesmen of debt !

You must pay the interest. No matter what it takes.

You must pay the interest. No matter what's at stake.


And if you sell your grandmother.

And if you sell your children.

And if you rip your heart out.


You must repay the debt.


Wed, 06/15/2011 - 08:57 | 1370539 SeverinSlade
SeverinSlade's picture

If you ask me, Bernanke is executing perfectly.  A month or two ago, QE3 seemed unlikely to the uninformed.  Once the debt ceiling is raised, Bernanke can then announce more stimulus.  He can say that inflation was indeed transitory and will point to the drop in commodities.  He will then say that while long term inflation is a potential problem that will be closely monitored, the threat of a slowdown in the domestic or global economy is too great.

Once it is formally announced, I think the clock begins ticking for the US.  China's only rating agency recently said that the US is already in technical default...China will only allow Bernanke to devalue the USD for so long before they decide to dump their reserves and demand payment in gold or a more stable currency.  12-18 months seems realistic to me.  Any thoughts?


Wed, 06/15/2011 - 09:07 | 1370561 John Law Lives
John Law Lives's picture

Don't forget that The Ben Bernank can stop inflation in 15 minutes.  He said so on '60 Minutes'.

Wed, 06/15/2011 - 09:01 | 1370540 RunningMan
RunningMan's picture

More economic malaise, more contraction. What a shock - when business is sluggish, people tighten/stop spending. Wealth effect is done, no matter what Maginot line the Fed draws (12K on the Dow? 10K? Won't matter now.)  We've had a two year burst of Fed-fueled activity, to try to ignite optimism that the world wasn't unraveling and gain altitude. But the fuel is spent, and gravity is once again reasserting itself.

Wed, 06/15/2011 - 09:07 | 1370572 Seasmoke
Seasmoke's picture

Gravity Always Wins

Wed, 06/15/2011 - 08:59 | 1370545 JSD
JSD's picture

Sooo...the Keynesian drip seems to be working as planned. No?

Wed, 06/15/2011 - 09:44 | 1370689 Ima anal sphincter
Ima anal sphincter's picture

Is that the same "drip" after you've blown your load? You (Fed) gave it your best shot. Now it's blue pill time, but the "main course" is done and gone.

Wed, 06/15/2011 - 09:01 | 1370550 John Law Lives
John Law Lives's picture

Look at the headline from AP re. how they reported the CPI data:

Consumer prices rise by smallest in 6 months
Christopher S. Rugaber, AP Economics Writer, On Wednesday June 15, 2011, 8:40 am

How comical.  I can envision the moment after the Apocalypse and right before the last bit of emergency power is drained from the HFT computers at Goldman Sachs as they run their programs... Must pump market... Must pump market... Must pump market...



Wed, 06/15/2011 - 09:02 | 1370551 youngman
youngman's picture

forcasts...futures...all need to be changed...but they won´ is an amazing day...there is an awful lot of information coming out of the fog...but nothing seems to be happening....except gold and silver dropping..and that is what is very wierd to I sit on the sidelines with my stash..yes I have a dog in this fight...I can not believe people would sell gold and silver at this point in time....not one ounce....all you do is make your short term profit and then you have to pay tax on that...The Western world is falling apart....we can not believe what the "leaders" are saying......look at the Euro boys...they have to come up with some agreement to default Greece..but without it looking like a default.....LOL..WTF...California today is passing a budget that is full of accounting tricks to make up the 19 billion I crazy...or is this crazy what is going on...

Wed, 06/15/2011 - 09:33 | 1370638 PaperBear
PaperBear's picture

Once the masses realise some other form of QE is on after June 30th gold/silver will explode with more force than that exhibited by the recent run up.


Wed, 06/15/2011 - 17:53 | 1372708 knowless
Wed, 06/15/2011 - 09:03 | 1370554 flyr1710
flyr1710's picture

the soft patch is japan's fault

Wed, 06/15/2011 - 09:03 | 1370560 dcb
dcb's picture

nothing against ZH, but your key word stagflation, Vs. deflation, Vs. hyper inflation changes weekly. my predictor has been stagflation from the get go, over two years, and in fact i believe we have been in stagflation for a long period of time. But my metric is a relative one where I look at asset prices, Vs. the real economy. is the rise in asset prices justified by the real economy. the answer has been no.

Wed, 06/15/2011 - 09:11 | 1370573 francis_sawyer
francis_sawyer's picture


Wed, 06/15/2011 - 09:19 | 1370604 francis_sawyer
francis_sawyer's picture

the Bernank's explanation is "more sophisticated diets by catfood lovers"...

Go long 'Fancy Feast' futures

Wed, 06/15/2011 - 09:06 | 1370571 lizzy36
lizzy36's picture

2010...2011, 2nd verse same as the first.

Wed, 06/15/2011 - 09:52 | 1370707 Cognitive Dissonance
Cognitive Dissonance's picture


I didn't know you were a Herman's Hermit's fan. Just another reason to love ya. :>)

Ed Sullivan Show intro....

Wed, 06/15/2011 - 09:10 | 1370579 monopoly
monopoly's picture

Good Morning,

Stagflation first, then inflation and maybe extreme inflation. This is moving along just fine. Another piece of the puzzle just fit in. Zero Hedge has been right on with forcasts. Inflation will continue, wages will not rise and except for the Wall Street pros, ha, few will move forward in the land of the "free"??

Wed, 06/15/2011 - 09:15 | 1370595 web bot
web bot's picture

Without rising wages, we won't have inflation... we'll have an absolute erosion of our standard of living. One wage pressure starts, we'll start to see systemic inflation. Once we see a default of the US$, then we'll see hyperinflation due to the velocity of money moving around the globe seeking yield.


Wed, 06/15/2011 - 09:33 | 1370629 francis_sawyer
francis_sawyer's picture

"Without rising wages, we won't have inflation... we'll have an absolute erosion of our standard of living. One wage pressure starts, we'll start to see systemic inflation"


- We'll see food & energy price inflation ebb & flow which will loosely correspond with QE cycles...

- That will happen until protestors begin to appear in the streets

- That's when the politicians will roll out the old 'FAIL' strategy of price controls

- Which will cause shortages (gas lines - odd/even days - empty store shelves)


- I doubt it as long as there is still coolie labor somewhere to be found

That's when things will start to get interesting... The battle of the FIATS to purchase raw goods...

In this corner: The USD/Euro alliance

In that corner: The Yuan/Ruble/Yen alliance

...or something like that (I'm only doing origami with a paper napkin & Lazlo's ruler at the moment)



Wed, 06/15/2011 - 09:33 | 1370637 malcom x
malcom x's picture

Saw these fraudsters' work throughout the day yesterday.  I was tipped about turn around Tuesday was coming, bought TNA's (7K) on Monday's close.  Sold the bitches mid-day yesterday as the market was fading.  They kept trying to push the fucker up all day and walla, in after hours last night, while TZA I believe closed at 39.70, they continued to push it further down.  Saw right through the fuckers, bought 14K in two lots, one 10K at 39.53 and another 4K at 39.52.  Laughing my ass off now (planning to keep my short position and continue to add to it for the next three weeks or so or slaughter that is coming the market's way).  Will be liquidating all fiat money beginning of August and will move all to PM to add to my position thanks to Berney's fiatfraud.

Wed, 06/15/2011 - 10:29 | 1370879 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

good call, thats how I see it going down.

Wed, 06/15/2011 - 09:16 | 1370583 Silverhog
Silverhog's picture

Say goodbye to 12,000 again. Any investor worth his shit should have know this was coming yesterday.

Wed, 06/15/2011 - 09:17 | 1370587 EscapeKey
EscapeKey's picture

As food get more expensive, the CPI weighting of food ought to increase as the percentage wise expenditure on this subset is likely to increase.

However, I seriously doubt it will, as it would result in even higher inflation figures. No doubt, according to the Keynesians - this is where the magic of substitution kicks in - food consumer bills as a percentage of outgoings are EXACTLY STATIC, even as food prices increase, and average income drops.

Lies, brazen lies.

Wed, 06/15/2011 - 09:39 | 1370649 Ergo
Ergo's picture

Good points.

From the article: "This is what stagflation is pure and simple"

Anyone that buys groceries and has a job knows that stagflation is here. 

Wed, 06/15/2011 - 09:17 | 1370589 Mr Rogers
Mr Rogers's picture

This is all just "transitory" until the S&P tests 666 again.

Wed, 06/15/2011 - 09:18 | 1370591 Re-Discovery
Re-Discovery's picture

Must remain calm . . .

Breathe, Breathe . .in through the nose, out through the mouth . . .

Row, row, row your boat, gently down the stream, merrily, merrily, merrily, merrily, Life is but a dream . .

Smile.  Smile Harder!

Don't Panic.  All is well.  DONT PANIC!!




Wed, 06/15/2011 - 09:19 | 1370603 Note to self
Note to self's picture

Yes exactly.  The Gannet headlines this AM interpretted all of this data as very positive for the economy!  98% of the US will swallow that.  They do not see the truck bearing down on them at 90MPH . . . 

Wed, 06/15/2011 - 09:20 | 1370606 goldencross10
goldencross10's picture

I will continue to be bearish and skeptical of this market, especailly these

last few weeks. The data is terrible, there is no job growth, banks aren't

lending, There is no reason why the S&P is above 1,200 right now, stocks

are not "cheap" but still a bit pricey. Corporations can cut cut cut to get that

profit, but that only gets them so far. 

Wed, 06/15/2011 - 13:04 | 1371544 Saxxon
Saxxon's picture

Agreed on all points except shorting 2009-2010 made me a believer; I think the S&P can and will be levitated no matter what the crumbling concrete piling that is the U.S. economy is doing.

B.O. and Bernank have one macro-item they can point to with pride; ONE.  That is "The DOW".

We of course know the DOW is an inferior index to the S&P as a gauge; but 99 % of the population (and all of MSM) reaches for the DOW first and the NAZ second (NAZ hangover interest from the go-go 1990s).

They will not let these indices tank.  Look at Bush II - tankage, outage.

B.O. and the Dems have a lot of spin and subterfuge control right now.  They want 2012 and I personally believe he is a shoe-in but they need to keep the wheels on.

The juice will be there.

This is why rulers invariably blow out their currencies.  The Greeks the Romans John Law France etc., etc.  No incumbent is going to stop the party - they lose the instant they do so. 

Therefore they inflate.  The juice will be there.

Wed, 06/15/2011 - 09:26 | 1370613 Re-Discovery
Re-Discovery's picture

We have been reduced to looking to the Chinese Government for information that rallies the  markets. 

Welcome to Hell.

Wed, 06/15/2011 - 09:44 | 1370686 centerline
centerline's picture

LOL.  Rather, I am watching for the financial mushroom cloud off on the horizon.  China did a good job early on in this global economic chess game, but is getting their collective tit caught in the wringer now as western coutries are going down hard - but the lack of confidence in the Chinese prevents them from so easily becoming the next reserve currency on their own.  Seems to me we have a massive breath-holding contest going on.

Wed, 06/15/2011 - 09:41 | 1370657 centerline
centerline's picture

Margin compression in various professional services sectors is incredible. I can attest to that personally. A couple of good months balancing many bad months. The same pattern for the last 3 years. Net result is zero profit combined with slashed cap-ex budget that is unsustainable, re-negiotiated obligations that will come back with a vengeance in a few years, reduced staff (for same workload), ever decreasing benefits, etc. The mid-size company gets taken out at the knees - unable to compete at lower fee levels due primarily to overhead, and likewise unable to "buy" work as readily as the big boys. Lots of mid-sized firms now at the end of their rope.

Wed, 06/15/2011 - 10:27 | 1370845 Re-Discovery
Re-Discovery's picture

I am so short the market right now I feel like a character in Gulliver's Travels.

Wed, 06/15/2011 - 10:02 | 1370739 markar
markar's picture

Apmex offering 1 oz. silver rounds for $.99 over spot.

Wed, 06/15/2011 - 10:32 | 1370873 Caviar Emptor
Caviar Emptor's picture

I know I'll stir things up, so I'll just post this here:

-It's Not stagflation. It's an inflationary depression. The term stagflation was coined to describe the situation in the 1970s (I was at Wharton then). There was wage inflation then which the Friedman Monetarists targeted since they considered it the cause of the inflationary spiral. THey busted on the unions and they promoted outsourcing and offshoring to China (and elsewhere) again to undermine wages. They made regressive tax changes: cuts for upper income, raises for middle and lower. And there was much higher GDP growth than today during the 1970s.

What we have to day is biflation, a new beast. 

Wed, 06/15/2011 - 10:59 | 1371000 snowball777
snowball777's picture

I'm hedging against inflation...with a case of Frank Valley Cab 08.

Get this: they still take FRNs!

Wed, 06/15/2011 - 11:59 | 1371247 AldoHux_IV
AldoHux_IV's picture

The centrally planned regime from here to Greece to all emerging markets are choosing winners and losers on an economic basis not based on merit, but on their close relationships to the current failed financial system.  Stagflation is economic genocide in its most ugly form whereby a small group of people determine the fate of many and will do anything to ensure that the current set of oligarchs continue their undeserved control over the masses.

They have no right and will pay for their crimes against humanity.

Wed, 06/15/2011 - 21:51 | 1373281 Buck Johnson
Buck Johnson's picture

I think Stagflation and Inflationary Depression are one of the same.  One says half a dozen the other say 6 out of 12. 

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