Empire Flashing Red

QI TAKEAWAY  Recession was validated in October’s Empire Manufacturing Survey, intensifying downside risks for industrial production and ultimately consumer price inflation. Echoes in other regional datapoints would augment the peak rates narrative.

  1. In the NY Fed’s latest Empire Mfg Survey, Current Business Conditions and six-month expectations were both negative, at -9.1 and -1.8, respectively; the last time both printed negative was February 2009, validating Bloomberg headlines of a 100% recession probability
  2. The Future Inventories-New Orders spread fell to -3.1 in October, the first negative read in 22 years of data and under the single-digit lows of the GFC and 2001 recessions; despite NY’s smaller factory footprint, this inversion appears to be signaling a turn in U.S. Industrial Production
  3. Past recessionary readings of the Future Inventories-New Orders spread preceded periods of disinflation and deflation, as is Powell’s current goal; meanwhile, Other Deposits, ~80% of M2, is at just 0.8% YoY, and should be negative by year-end as money demand shrinks

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