As the US reporting season for the second quarter of 2022 ends, economists and investors are paying close attention to the latest signs of the US economy – is a recession coming? Special attention is paid to key indicators that are not related to the past, such as inflation and GDP data. A regional economic indicator, the Empire State Manufacturing Index, came out of New York state on Monday, and it fell. Just a blip – or another sign that the soft landing is a desire of the US Federal Reserve?
Further US economy recession? Empire State Manufacturing Index Crash
Normally, one shouldn’t place too much value on volatile regional data, but it certainly fits into the bigger picture. When an industrial parameter from a major economic center moves so far south, the parallel national economy weakens, Inventories of goods grow and even fall in producer prices. , Incidentally, New York state alone had a slightly higher national product in 2021 than Russia’s vast empire at $1.85 trillion.
Here is the latest edition of the New York Empire State Manufacturing Index:
Quite serious: The value of business activities in manufacturing fell 42.4 points from the previous month (11.1 points) to a negative value of minus 31.3 points. The expectation was over 5.5 points.
The three-month average is also in negative territory, but not nearly as low as the August monthly price suggests. So just a blip, for the bigger picture you should also include other key indicators:
Some regional PMIs have been falling for months, such as the closely watched Philadelphia Fed Index:
But nationally, for the United States as a whole, the ISM manufacturing index was still 52.8 points above the growth threshold, a discount of only 0.2 points from the previous month:
The economy in the United States is in an extremely tense state. Because the United States isn’t even an island, it’s also worth taking a look at China, which by production figures has the world’s second-largest economy – or even Europe, where industrial output is also rapidly declining. Showing side.
Here is the Purchasing Managers’ Index for Europe:
Graphic: Trading Economics
What does this mean for the US stock markets?
As the master of US interest rates, Jerome Powell put it in his final statement, when he emphasized that the Federal Reserve will react “dependently on data” from now on:
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the effects of incoming information on the economic outlook. The Committee shall be prepared to adjust the monetary policy stance as appropriate if risks emerge that may impede the achievement of the Committee’s objectives. ,
Which certainly doesn’t make things any easier, as the US Federal Reserve undoubtedly wants to bring inflation down with all its might. On the other hand, three months before the midterm elections in the United States, no one will act restrictive in a weak economy, despite all the lip service.
So: inflation versus recession, declining interest rate expectations versus profits for the S&P 500 — the situation couldn’t be more difficult for stock market investors. With a glimmer of hope for a soft landing, the hope of an end to the monetary crunch is still alive. But the stock market may no longer tolerate the many negative reports about falling leading indicators.
Or to put it another way: If the purchasing managers’ indexes also fall below the 50 growth threshold in the United States, there is a risk of default, as recessions would regularly be avoidable at the latest 45 points.
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