Manufacturing is in contraction

Two important regional manufacturing indices this week reported contractions in manufacturing.
For the first time since November 2010, Empire State Index that was released by the New York Fed fell nearly 20 points in the June reading to minus 7.79 in what the report describes as a "steep" decline. New orders fell nearly 21 points to minus 3.61. Shipments are even worse, down nearly 35 points to minus 8.02.

Philly Fed survey echoed the Empire State survey. Philly Fed general business conditions index came in at minus 7.7 for the first negative reading since September 2010.  New orders are minus 7.6 with unfilled orders at minus 16.3. Shipments and employment both rose in the month but at a slower rate.  Declines in orders are likely to point to slowdowns, if not contractions, in shipment and employment.

Business sentiments deteriorated quickly. The six-month outlook as what were once expectations for very solid growth are now turning into expectations for only marginal growth. Much cited in recent weak economic data reports has been Japanese supply effects. However. transportation equipment, where Japan effects is the most pronounced 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.  

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.