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Bond Yields Slump as Empire State Index Points to Further Slowdown

Economic Indicators Aug 15, 2022 08:49AM ET
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By Geoffrey Smith 

Investing.com --  U.S. manufacturing looks likely to have slowed much more sharply than thought over the last month, as a closely-watched regional activity index posted its sharpest fall in over two years in August.

The Empire State Manufacturing index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. 

New orders and shipments plunged, and unfilled orders also declined, albeit less sharply, the NY Fed said. Other evidence of a substantial slowdown included a rise in inventories and a decline in average hours worked. 

"Looking ahead, firms did not expect much improvement in business conditions over the next six months," the NY Fed said. 

One bright spot was that the subindex for prices paid moved lower, albeit remaining at a historically elevated level. That was due largely to a big drop in energy prices over the course of the month.

U.S. bond yields fell in response to the news, as market participants became more confident that the slowdown will force the Federal Reserve to stop raising interest rates next year. By 08:45 ET (12:45 GMT), the yield on the benchmark two-year Treasury note was down five basis points at 3.21%, while the five-year note was down over six basis points at 2.91% and the 10-year note was down six basis points at 2.79%. 

The S&P 500 futures contract also fell by 10 points to be down 0.7% from Friday's close in New York.

However, analysts cautioned against reading too much into the report, which has lost some of its reliability as an indicator of nationwide activity in recent year, having become considerably more prone to monthly volatility.

 
"This out-of-the-blue plunge - incredibly, a bigger drop than in March 2020 - is impossible to tie to other indicators," said Ian Shepherdson, chief economist with Pantheon Macroeconomics, in a note to clients. "Remember that the Empire State is a small regional survey and it is not definitive evidence of anything. It is not a reliable indicator of the national ISM manufacturing index."
 
Shepherdson predicted that none of the other regional reports for August (the Philadelphia Fed's survey is due on Thursday) will be "as startlingly terrible as this one".
 

 

 

 

Bond Yields Slump as Empire State Index Points to Further Slowdown
 

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Comments (1)
Kris Jay
Kris Jay Aug 15, 2022 10:10AM ET
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yet the markets are up.
soho electronics
soho electronics Aug 15, 2022 10:10AM ET
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markets only go up. simple!
Kris Jay
Kris Jay Aug 15, 2022 10:10AM ET
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soho electronics  yes if you're 21 you probably have never experienced Fed QT and Fed rate hikes and what they do to the economy and to stocks.
 
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