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I am still recovering from a cross-country trip: my notes will be less frequent, perhaps shorter. I will not get to my e-mail as often and I will not be able to post comments as often or in a timely manner.
Did I miss something?
I woke up this morning before the market opened, and all I was hearing was that the market was in free fall following the New York manufacturing index dropping to its lowest in twenty years or something like that, and here we are, late afternoon:
- DOW: up 362 points
- S&P 500: up 20 points
- Nasdaq: up 92 points
Even WTI has recovered nicely and natural gas is down all of five cents, trading at a remarkable $8.615.
Oh, here it is: United States NY Empire State Manufacturing Index.
The term NY Empire State Index refers to the result of a monthly survey of manufacturers in New York state. The survey is conducted by the Federal Reserve Bank of New York. The bank sends out the survey every month to business leaders who represent a wide swath of the manufacturing sector. The headline number for the index refers to the main index of the survey, which summarizes general business conditions in New York state. The index is widely watched for insights into the state and direction of manufacturing in New York state.
Empire State. New York. Manufacturing. One state. Are you kidding me.? That spooked everyone?
Think about this. One state. Why not look at the manufacturing index for the entire southeast and southwest (excepting California, of course)?
But this makes it huge. Look at "actual" vs "forecast." Wow, wow, wow. Does anyone think the Fed is really going to raise rates another 25 basis points with this data point, much less 75 basis points.
Index:
- forecast: positive 8.5
- actual: negative 31
The other item spooking folks: China cut "rates." Did anyone even look at the actual rate cut? Ten basis points.
China’s central bank cut both one-year and seven-day lending rates by 10 basis points, a move economists said would have little impact since Covid controls have made households and businesses reluctant to borrow. New credit in July increased at the slowest pace since at least 2017. Bloomberg.
Folks who have not read Peter Zeihan's book, c. 2022, completely miss(ed) the point regarding China's economic numbers. Oh, well.
Why not look at the manufacturing index for the entire southeast and southwest?
ReplyDeletei can do that...
the Dallas Fed's Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, indicated its general business activity index fell to -22.6 in July, down from -17.7 in June, and from -7.3 in May, indicating a larger majority of Texas businesses are experiencing a slowdown than in prior months; and the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose from -9 in June to 0 in July, indicating stagnation at June's level among that region's manufacturers.
that's all we get; only 5 of the 12 regional Feds do such a survey...the others are KC & Philly...
btw, the New York Fed's district also include northern new Jersey, a county in Connecticut, and Puerto Rico...
Thank you. I never would have guess that Texas is doing so poorly. Wow. Truly amazing. Seems to be a big disconnect among: the Fed's numbers; what we seem to be seeing; and the stock market. No wonder pundits suggest this is very, very strange.
Deletethe caveat on all those Fed surveys is that they're not hard data; they're just a polling of executives from the manufacturing companies in their districts...i once explained how they work in detail, and why they're not so reliable, so i'll paste what i wrote about the PMIs here, which also applies to the methods used in the Fed surveys:
DeleteTo grasp what that record high Services PMI means, you should understand that the PMIs, and all other such diffusion indices that i know of, are derived from a survey of purchasing managers or other executives who are in a position to know the details of a business’s condition….once a month, those execs are queried as to their company’s production, new orders, employment and several other business metrics, with their possible responses simplified to “getting better”, “getting worse”, or “about the same”…..responses from those executives indicating improvement at their company add 1 to the index; those that respond conditions are about the same as the prior month add 0.5, and those indicating weaker business conditions add 0….the diffusion index is then constructed by multiplying the resulting total by 100 and dividing that by the number of responses…there is no query as to the degree that conditions might be getting better or getting worse…hence, the response from a company that might be doing much better would be offset by one doing just slightly worse…furthermore, there is no weighting of the size of the companies whose purchasing managers are members of the Institute for Supply Management; the response from Ford Motor’s purchasing manager, for instance, counts the same as the response from the purchasing manager of Podunk Tiddlywinks…hence we might have a strongly positive PMI if several tiddlywinks companies had a little bit better month in October than they did in September, even if Ford and GM were doing much worse…however, since the PMIs are released well in advance of the hard data collected by government agencies for the month, they are probably still useful as an advance indicator of industry sentiment, and possibly might indicate which direction the actual data for the month might turn…but other than that, they’re really no more indicative of the hard data than a consumer confidence survey is of retail sales…
the only difference in the Fed surveys is that a negative response subtracts 1 from the index value..
Thank you. Much appreciated. It will take some time to go through that, but just the fact there is no "weighting" speaks volumes. Thank you. Bruce.
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