The NY manufacturing index, the 1^st September industrial figure to be released, fell to +2 from +4.8. The estimate was +4. This is the 2^nd lowest print going back to late 2016. Within, new orders fell 3.2 pts to 3.5. Backlogs remained below zero for a 5^th month in the past 6 but less so compared with August. Employment bounced back after 3 months in a row that was negative. The workweek went from -1.3 to +1.7. Inventories grew for a 2^nd month. Prices paid rose to a 6 month high while those received is at a 4 month high. Tariffs?

The notable weakness in the data was the 6 month outlook which fell to 13.7 from 25.7 and that’s the 2^nd lowest level since early 2016. Plans for capital spending on equipment and technology both dropped sharply with the former down to 4.6 from 23.2 and the latter at 6.5 from 17.4. This is for sure a consequence of the lack of business visibility for those in manufacturing. The outlook for new orders, backlogs, inventories, and employment all fell while they rose for prices paid and received.

Bottom line, while there was little change in the headline number and a mixed bag of internals, the 6 month outlook and the underlying components within it “deteriorated noticeably, and capital spending plans weakened markedly” according to the NY Fed. It’s hard not to continue to point the finger at what the tariff battle has wrought. And, are the tariffs the reason why prices paid and received both currently and in the outlook jumped? Likely.

NY MANUFACTURING 6 month outlook

Separately, the implied inflation rate in the 5 yr TIPS is up by 4 bps to 1.53% in response to the rise in oil. As seen in the chart below, inflation breakevens and oil prices are highly correlated. I use the 5 yr here instead of the 10 yr because moves in oil prices typically only impact shorter term inflation expectations.

Oil in white, 5 yr breakeven in orange