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Economy Failing Right On Time

Written by admin | Sep, 16, 2013

philly-fed-061511Following yesterday’s release of the New York Fed Region survey, Empire Manufacturing Index, today’s release of the Philadelphia Federal Reserve region index fails economists expectations of a rise, I know another “shocker”, from 3.9 to 9.0 and comes in at a NEGATIVE 7.7 which is now in contraction territory. This is yet another component of our STA Economic Output Index that is currently telling us that the current “soft patch” as pitched by economist is much more than that.

Weakness was centered where you want it least, in orders. New orders were minus 7.6 with unfilled orders at minus 16.3. Shipments and employment both rose in the month but at a slower rate, and the decline in orders points to further slowing, if not contraction, in future reports. (The lack of consumer demand is starting to show up all across the board.)

In special questions this month, firms were asked about recent cost increases for energy and raw materials and the nature of their pricing since the beginning of the year. Forty-seven percent of the firms indicated they had increased base prices since the beginning of the year, although 54 percent said they have been unable to pass on cost increases. Moreover, 19 percent have instituted surcharges, and 14 percent have price escalation clauses covering cost increases. Respondents also indicated that a large percentage of their suppliers have instituted surcharges covering recent cost increases: 71 percent of the firms reported surcharges for transportation, 36 percent for commodities, and 36 percent for energy. 34 percent of the firms indicated that surcharges and/or escalation clauses have always been an important element of their own pricing.

Another negative is a big decline in the six-month outlook as what were once expectations for very solid growth are now turning into expectations for only marginal growth. Japanese supply effects may be at play to some extent but transportation equipment is not a dominant industry in either the Mid-Atlantic or New York regions. This week’s two reports raise the risk of contraction for the ISM’s national report on manufacturing to be posted at the beginning of July.

As we have been stating for the last several months, with the diminishing effects of QE 2 already fully piped into the economy the impact of the withdrawal of that support is showing up just as expected. We should start hearing clambering calls of more stimulus very shortly since this seems to be the only trick that our current Administration and Fed have at their disposal.

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