Slowing Down

From Bloomberg:

Business activity in the New York manufacturing region has firmed slightly so far in September, the latest report to point away from a double dip. The Empire State Index came in at 4.14, a reading over zero to indicate month-to-month growth but at a slightly slower pace of growth than August's 7.10 reading. A rise in new orders is clearly good news, at 4.33 vs. the minus 2.71 that indicated month-to-month contraction in August. Employment is also a positive, at 14.93 to indicate strong month-to-month labor growth and at a slightly higher rate than August's 14.29.

Other readings are less positive. Unfilled orders are extending their run of contraction, at minus 5.97 in September. Draws in unfilled orders do not point to extending gains for employment. The six-month outlook for unfilled orders moved into the negative column while employment plans and new order expectations slowed.

Today's report is positive but only marginally positive. Tomorrow's September report from the Philly Fed will be very closely watched given its surprise contraction in August.

Market Consensus Before Announcement
The Empire State manufacturing index in August was positive at 7.1, rising 2 points from July. But details suggest slowing ahead, indicating that September may not be as strong as August. The new orders index fell into negative territory for the first time in more than a year, dropping to minus 2.7 from plus 10.1 in July. The unfilled orders and shipments were also negative.

Import and Export Prices


These two indicators give us some more evidence that the economy is continuing to slow as the effects of "stimulus" wear off. The structural changes that need to be made to the economy are immense, and the consumer capacity to spend has been significantly diminished by rising unemployment and loss of equity in real estate. The consumer is slowly realizing that much of the economic cheer-leading is simply hype, not substance.

With these factors in mind we are renewing our call of increasing deflationary pressures, even in the face of the threatened QEII.