(Peter St Onge, Ph.D) The Federal Reserve has been gas lighting the American people for two years now on inflation in the economy. At this point the happy talk is hitting reality with the latest Empire State manufacturing survey, a bellwether for conditions across the country showing its biggest plunge ever, second only to the month they literally shut down the economy for COVID-19. Economists had expected a minus five on the survey. A minus means the economy is contracting. The actual number was minus 31.
Tag Archives: Manufacturing
Dallas Fed: “Contraction in Texas Manufacturing Sector Worsens”, Record Low Activity Index
From the Dallas Fed: Contraction in Texas Manufacturing Sector Worsens
Texas factory activity declined further in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, pushed further negative from -35.3 to -55.3, suggesting the contraction in output has steepened since last month.
Other measures of manufacturing activity also point to a sharper decline in April. The new orders index dropped 26 points to -67.0, its lowest reading since the survey began in 2004. Similarly, the growth rate of orders index fell to -62.2. The capacity utilization and shipments indexes fell to -54.5 and -56.6, respectively. The capital expenditures index declined 20 points to -54.3. Each of these April readings represents a historical low.
Perceptions of broader business conditions remained very pessimistic in April. The general business activity index inched down from -70.0 to -73.7, pushing to a new historical low. The company outlook index remained near an all-time low but inched up from -65.6 to -62.6. The index measuring uncertainty regarding companies’ outlooks retreated slightly to 54.4, a reading still indicative of sharply increased uncertainty.
Labor market measures indicate further employment declines and shorter workweeks this month. The employment index held steady at -21.2. Three percent of firms noted net hiring, while 24 percent noted net layoffs. The hours worked index dropped 18 points to -40.2, signaling a notably reduced workweek length.
emphasis added
The last of the regional Fed surveys for April will be released tomorrow (Richmond Fed).
U.S. Manufacturers See Biggest Plunge In New Orders And Employment In 11 Years — ISM Finds
ISM manufacturing index shows biggest drop in orders since 2009
Most manufacturers are suffering, but not all of them. Those that make foodstuffs and safety equipment are holding up better than others. Getty Images
The numbers: American manufacturers began to feel the brunt of the coronavirus pandemic toward the end of March as new orders and employment fell to the lowest level since the end of the 2007-2009 Great Recession, a new survey of executives showed.
The Institute for Supply Management said its manufacturing index slipped to 49.1% last month from 50.1%. Readings under 50% indicate more companies are contracting instead of expanding.
Economists surveyed by MarketWatch had forecast the index to drop to 44%, but the survey was completed before widespread sections of the U.S. economy were shuttered.
The index is all but certain to sink next month, though a few industries are likely to hold up surprisingly well because of an increase in demand for products such as toilet paper, sanitizer and other consumer goods in short supply.
What happened: New orders for manufactured goods slumped in March. The ISM’s new-orders index fell 7.6 points to 42.2% — the lowest level since the end of the 2007-2009 Great Recession.
“COVID-19 has caused a 30% reduction in productivity in our factory,” said an executive at machinery manufacturer.
Production and employment also declined, with employment also sliding to an 11-year low.
The ISM index is compiled from a survey of executives who order raw materials and other supplies for their companies. The gauge tends to rise or fall in tandem with the health of the economy.
Empire State Manufacturing Index Sees Record Decline To -21.5 In March
Business condition index falls 34 points, components also weak
A worker sews U.S. military uniforms at the Alphapointe Association for the Blind manufacturing plant in Queens. Bloomberg News/Landov
DJIA
-12.92%
U.S. Manufacturing Production Contracts For 7th Straight Month, Capacity Utilization Tumbles
After falling for 3 of the last 4 months, and following Germany’s disastrous January print, US Industrial Production was expected to drop by 0.2% but yet again it disappointed, falling 0.3% MoM.
This means US Industrial Production has contracted year-over-year for 5 straight months.
- Utilities fell 4% in Jan. after falling 6.2% in Dec. (warm weather-related?)
- Mining rose 1.2% in Jan. after rising 1.5% in Dec.
In the manufacturing segment, production slipped 0.1% MoM, matching expectations, but is down year-over-year for the seventh straight month…
Finally, we note that Capacity Utilization slumped to 76.8%.
And this is before the impact of the virus had fully hit global supply chains.
US Steel Shares Plunge, Dividend Slashed, Buybacks Halted, 1,500 Workers Cut Amid Deepening Manufacturing Recession
President Trump told a crowd of steelworkers in Illinois in July 2018 that “After years of shutdowns and cutbacks today the blast furnace here in Granite City is blazing bright, workers are back on the job and we are once again pouring new American steel into the spine of our country.”
While US Steel’s Granite City might be operational for the time being, the steel producer has just announced it will shut down a “significant portion” of its Great Lakes Works facility, slash its dividend, terminate 80% of its share buyback program, and layoff 1,500 workers.
Great Lakes Works is expected to halt operations by April 2020. The mill rolls slabs into sheets of steel and has been battered by the manufacturing recession and trade war. The facility laid off 200 workers earlier this year, with another 1,500 in the near term, reported 247 Wall Street.
The failed turn around of US Steel comes as the manufacturing recession shows limited signs of abating, forced the company to slash its dividends for 2020 from $.05 per share to $.01. At least 80% of its buyback program will be terminated in early 2020 – a measure to help the struggling steel company avoid bankruptcy.
The company will refocus its efforts at its Mon Valley Work facility in Pennsylvania, Big River Steel in Arkansas, and another in Gary, Indiana.
US Steel CEO David Burritt told investors on a call that “Acquiring the remaining stake in Big River Steel continues to be our top strategic priority.”
Burritt also commented on the upcoming Great Lakes Works shutdown:
“[C]urrent market conditions and the long-term outlook for Great Lakes Works made it imperative that we act now, allowing us to better align our resources to deliver cost or capability differentiation across our footprint. Transitioning production currently at Great Lakes Works to Gary Works will enable increased efficiency in the use of our assets, improve our ability to meet our customers’ needs for sustainable steel solutions and will help our company get to our future state faster,” he said.
US Steel has revised fiscal 2019 guidance lower, expects a decrease in spending in 2020. Here are the earnings highlights via Reuters:
** Shares of steel producer XN drop 5.7% to $12.60 premarket
** Company sees Q4 adj. loss per share at $1.15 compared with analysts expectations of 60 cents
** Cuts its quarterly dividend to $0.01/share from $0.05/share (Full Story)
** Expects Q4 adj. EBITDA to be -$25 mln, which excludes about $225 mln of estimated restructuring and other charges, compared with analysts’ EBITDA est. of $83.98 – Refinitiv IBES data
** Company also lowers its 2020 spending forecast to $875 mln from $950 mln
** Says it plans to “indefinitely idle a significant portion” of its operations at its Great Lakes Works facility near Detroit
** Company will issue Worker Adjustment and Retraining Notification Act notices to about 1,545 employees at the facility (Full Story)
** While steel markets in North America are recovering, Europe and Tubular segments remain weak – company
** Up to Thursday’s close, stock had fallen ~27% this year compared with ~18% gain in the S&P 400 materials index .SPMDCM
US steel was supposed to get a boost from President Trump’s 25% tariff on steel imports, but that has since backfired as steel prices continue to drop, and a manufacturing recession continues to deepen.
So the question remains, with US Steel shares turning lower into 2020 – does that mean S&P500 priced in a monster rebound in growth that may not happen? If so, that could mean the Fed’s ‘Not QE’ has helped fueled a blow off top in stocks.
Diesel Demand Slump Signals Year Long Manufacturing Recession Is Still Raging
The U.S. economy is decelerating into an election year and could print below-trend growth by 2H20.
Manufacturing, employment, and inflation have all been in downturns for one year, hence why the Federal Reserve has been quick to slash interest rates, as President Trump has been begging for negative interest rates, quantitative easing, and emergency tax cuts.
New data from Reuters’ John Kemp shows how manufacturing continues to decelerate into year-end as there’s little evidence that growth will trough and zoom higher in early 2020.
Kemp says waning diesel consumption is a significant warning sign of manufacturing output continuing to contract and volume of freight plunging. These factors have put downward pressure on spot oil prices.
U.S. Energy Information Administration (EIA) data shows consumption of diesel was down 3% in Q3 versus a year earlier.
Kemp notes that diesel is used by “trucking firms, railroads, manufacturers, construction firms, oil and gas drillers, and farmers, so diesel consumption is tightly coupled with the manufacturing cycle.”
He said the drop in diesel consumption relative to gasoline shows that the manufacturing recession is worsening as the consumer is generating slower growth.
Consumption growth of diesel has plunged across the world.
Manufacturing downturns in China, India, Europe, South America, and the U.S. have contributed to declining demand.
As the global economy decelerates into 2020, diesel demand will continue to decline, forcing oversupplied conditions and lower prices.
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Major Freight Carrier Bankrupted, Leaving 3,000 Truckers Jobless, Many Stranded On Highways
Easy Money Martin 