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:


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
hugovanderbubble's picture

Long SRS till my hand hurts...


Short IYR, SHORT RWR....


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



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.

the not so mighty maximiza's picture

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



hugovanderbubble's picture

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

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


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



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.


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.

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.

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

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]

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?

augie's picture

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

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)

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."

sbenard's picture

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

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...

Mae Kadoodie's picture

Stag-patch?  Soft-Stag?  Trans-Stag?

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.


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?


John Law Lives's picture

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

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.

JSD's picture

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

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.

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...



youngman's picture

forcasts...futures...all need to be changed...but they won´t...today 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 me....as 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 shortfall...am I crazy...or is this crazy what is going on...

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.


flyr1710's picture

the soft patch is japan's fault

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.

francis_sawyer's picture

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

Go long 'Fancy Feast' futures


lizzy36's picture

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

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....


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"??

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.


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)



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.

theMAXILOPEZpsycho's picture

good call, thats how I see it going down.

Silverhog's picture

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

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.

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. 

Mr Rogers's picture

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

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!!




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 . . . 

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.