Economic Conditions Continue to Worsen

It must be China. Or the weather, which is usually either too cold or to warm – somehow the weather is just never right for economic growth. Surely it cannot be another Fed policy-induced boom that is on the verge of going bust? Sorry, we completely forgot – the Fed is never at fault when the economy suffers a boom-bust cycle. That only happens because we have “too few regulations” (that’s what Mr. Bernanke said after the 2008 bust – no kidding).

Photo credit: Matthew Emmett

No matter what economic data releases one looks at lately, one seems more horrendous than the next. This is apart from payrolls of course, which are not only a lagging indicator, but are apparently a number that is occasionally made up out of whole cloth – such as in December, when 281,000 of the reported 292,000 in non-farm payroll gains were the result of “seasonal adjustment”, which is bureaucrat-speak for “didn’t actually happen”.

Today the markets were inundated with data that strongly suggest that the negative trends observed over much of 2015 continue to accelerate. In what is by now a well-worn tradition, Fed district surveys of the manufacturing sector continued their decline with today’s release of the Empire State survey. One no longer risks being accused of hyperbole by calling its recent trend a “collapse”:

Empire State Survey, general business conditions index. Such readings are usually not seen during economic expansions – click to enlarge.

As is often the case, not a single economist came even remotely close to correctly forecasting this meltdown. As Mish noted earlier, it was quite a big miss:

“The Econoday Consensus  estimate was for a slight improvement to -4 from a November reading of -4.59. The actual result was -19.37 with the lowest economic estimate -7.50.”

Our friend Micheal Pollaro has provided us with several charts, including the following comparison chart, which shows the Empire State survey’s new orders index for January, as well as the new orders index of the National ISM and the average of the new order indexes of the Fed district surveys as of December. Not only are new orders one of the most important components of such surveys, as they lead future manufacturing activity, but in recent months the Empire State new orders index has begun to lead other survey data. If it continues to work as a leading indicator, one should expect more negative data points to be released in the near future.

New order indexes: Empire State (red line, for January), average of all district surveys (brown line, as of December) and ISM (blue line, as of December, rhs) – click to enlarge.