Empire Fed Mysteriously Rises Even As All Components Deteriorate

Over the past year we have seen numerous occasions where regional Fed diffusion indexes posted a headline rebound despite all their components deteriorating. Today was one such day, when moments ago the NY Fed released the Empire State Mfg Survey, which "somehow" rose from -4.21 to -1.99 (it still missed expectations of a -1.00 print). We say somehow because the "rise" happened even as every component in the index declined, to wit:

  • New orders fell to -7.45 vs 1.04
  • Shipments tumbled to -9.38 from 9.01
  • Unfilled Orders fell to -11.61 from -9.28
  • Delivery time fell to -4.12 from -6.25
  • Inventory fell to -12.5 vs -4.12
  • Number of employees fell to -14.29 vs -1.03
  • Work hours fell to -11.61 vs 2.06
  • Prices received fell to 1.79 from 2.06

There was just one component which rose - the one which should fall, namely prices paid, which rose from 15.46 to 16.96, and since this is the one component which cuts into profits (as prices received declined),  one can summarize that effectively every single component in the Empire Fed declined. And yet, the headline index rose.

At least the Empire Fed narrative did not try to spin the situation, admitting that "Business Conditions Remain Weak"

Echoing their August assessment, manufacturing firms in New York State reported a slight decline in business activity in September. The general business conditions index inched up two points, but remained negative at -2.0. Twenty-two percent of respondents reported that conditions had improved over the month, while 24 percent reported that conditions had worsened. The new orders index fell eight points to -7.5, indicating that orders dropped, and the shipments index tumbled eighteen points to -9.4, pointing to a pronounced reduction in shipments. The unfilled orders index slipped to -11.6. The  delivery time index fell to -6.3, signaling shorter delivery times. The inventories index moved down eight points to -12.5, indicating that inventory levels declined at a faster pace than in August.

Worse, the Labor Market Deteriorated: The employment index fell thirteen points to -14.3, indicating that employment levels contracted. The average workweek index posted a similar decline, falling fourteen  points to -11.6—a sign of retrenchment in hours worked. Both of these indexes reached their lowest levels of 2016. The prices paid index was little changed at 17.0, indicating that input prices  continued to rise at a moderate pace, and the prices received index held steady at 1.8, signaling that selling prices edged slightly higher.

The good news is that propaganda machine still works, and as the Empire Fed notes, "Outlook Remains Optimistic."

Indexes for the six-month outlook suggested that respondents were more optimistic about future conditions than they were last month. The index for future business conditions climbed eleven points to 34.5. The index for future new orders advanced to a similar level, while the index for future shipments, though positive, declined. The index for future employment moved up into positive territory, suggesting that firms expected to expand employment in the months ahead. Indexes for future prices rose considerably, suggesting that firms expected both input prices and selling prices to increase more significantly over the next six months. The capital expenditures and technology spending indexes both climbed to 10.7.

And why not: in a world in which the sumtotal of all components rises even as every single component deteriorates, one can certainly be optimistic that pretty much anything can happen.