The New York Federal Reserve released their regional manufacturing report today and to say it was bad might be an understatement. The chart is the composite index of both current business conditions and the future business outlook. Today’s report follows last month’s dismal outlook as well. Not surprising really, unless you are a mainstream economist who was expected a trip back into positive territory, considering the current state of the economy and the consumer.
With virtually everyone on Wall Street expecting a positive print, with the average at +5.00, the actual number of -3.76 comes as yet another reminder that Wall Street economists, analysts and politicians have no real clue as to the current state of the economy. What is more important is that the Empire Index is the first of several manufacturing indications coming in the month of July and if they continue to line up on the weak side of the ledger you can expect not only a weak 2nd Quarter GDP somewhere between 1.2 and 1.5% but a weak 3rd Quarter GDP as well. The contraction in the Empire index is now well into its second month and we will most likely see further revisions to GDP to the downside…yet no revisions yet to earnings. This is important because when earnings start to get revised down to match the outlook for the economy the stretched market valuations will also contract or, more simply, a stock market correction.
Furthermore, in relation back to the unemployment situation, the collapse in the Number of Employees Index to 1.11 from 10.20, or the lowest of 2011 does not bode well for an employment pickup in the coming months – even as economists were stumbling all over themselves last week to tell us why the measly 18,000 jobs created last month in the BLS payroll data was an anomaly. This drop is NOT good for July NFP numbers after the already atrocious June employment data.
Again, I have to ask, how do economists keep their jobs? Admit it. We could all use a job where being consistently wrong still yields a six figure salary. No wonder the financial system is broken.