Empire Manufacturing Stumbles in December

NY Empire Manufacturing unexpectedly tumbled from 27.4 in November to10.3 in December (consensus 20). This was the weakest pace in sixmonths. Orders slowed as companies reduced inventories. Any readingabove zero indicates growth, so today's number indicates economicgrowth is slowing as the credit crunch reduces demand. The NYindicator has been the strongest of the regional indexes in recentmonths, and is the first to provide December data. Thirty-fivepercent of the survey group felt that conditions improved over thepast month, while 24% felt they had deteriorated.
New orders dropped from 24.5 to 14.3, shipments fell to 21.1 from32.2, and inventories fell to -10. Future unfilled orders fell tozero. On the plus side, the outlook for the next six months rose to32.4 from 30.5 last month. Both the capital expenditures index andthe technology spending index rose last month.
The Empire product range tends to be more high tech, and also to bemore sensitive to export demand than some of the other regionalsurvey's products. Exports rose to a record high last month. Anotherpositive on the inflation front is that prices paid fell from a oneyear high of 42.9 in November to 35 in December. Oil prices fellabout $8 a barrel between the survey dates in November and December.In addition, prices received rose to 12.5 from 11.9 the prior month,but it appears that companies are still unable to pass on all of theirincrease in costs, which will continue to erode their profit margins.
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The current account deficit improved more than expected to -$178.5Bfor the third quarter. This is an improvement on the -$183.5Bconsensus estimate, and an improvement from the -$188.9B deficit inthe second quarter and -$217B deficit in the third quarter of 2006.