Nicholas Tenev

The Empire State manufacturing index increased to 7.10 in August from 5.08 in July, below our (10.0) and consensus (8.00) expectations. The details were mixed, with the new orders index dropping to -2.71 from 10.13 – a worrying sign that demand growth may have stalled. Shipments fell to -11.50 from 6.31, and the inventories index slipped to 2.86 from 6.35.

However, there were some bright spots in the report, most notably employment, which increased to 14.29 from 7.94, signaling that the recent slowdown in activity has not halted labor market improvement. The unfilled orders index increased to -10.00 from -15.87, the supplier delivery time index rose to the breakeven point of 0.00 from -7.94, and the average workweek index jumped to 7.14 from -9.52. On the inflation side, the prices paid index fell further in August, to 20.00 from 25.40, and prices received also decreased, to -2.86 from -1.59.

This report is weaker than we had hoped and suggests that the manufacturing slowdown of the past few months has continued into August. However, labor market improvement is apparently continuing nonetheless, an encouraging sign that recent weakness may prove temporary as labor income growth fuels the recovery.

source: BarCap