The New York Federal Reserve Bank published it’s monthly Empire State Manufacturing Survey and the headlines were disturbing to the financial markets for all of one microsecond (via CNBC Live updates):
The reason there should be concern is far beyond the headlines however as these pages and a few other lonely voices have been warning about stagflation since last year. Now with Trump’s Tariff Wars v2.0 going on, it looks more and more likely that this will be the case.
To begin with, remember, this is the proverbial “soft” data so businesses have no reason to lie to the Federal Reserve’s economic team and are usually more honest than when speaking directly to the media be it online or on camera.
Current conditions reflect their concerns with the trade war as the problems are starting to hit the region just a bit harder week after week.
New orders continue to trend downward and current shipment levels indicate another drop in “higher” shipments versus lower. But that is not the disturbing aspect of the current conditions, just a symptom.
If those top two readings are not indicative of businesses fearing a persistent level of stagflation in the economy, I shall eat my sweaty mechanics Tampa Bay Bucs baseball hat.
Meanwhile, future conditions are also beginning to enter into the fear category as manufacturers are worried not just about slowing growth and inflation, but the impacts of tariffs:
Which also explains the ongoing decline in CapEx heading into 2025 and a warning that expansion is not in the cards for quite a few businesses despite the screams and demands for “on-shoring” coming from the Washington, DC cabal.
For the purposes of the basis for this fear analyzing a paper published by this same NY Fed on June 4th titled “Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?” provides some insight as to why these readings are popping up in almost all of the regional Federal Reserve Bank surveys.
One of the conclusions in the report runs contrary to the political discourse in more ways than one:
Results indicate most businesses passed on at least some of the higher tariffs to their customers, with nearly a third of manufacturers and about 45 percent of service firms fully passing along all tariff-induced cost increases by raising their prices.
Emphasis is my own of course, but the chart they published with this report highlights this excerpt quite nicely:
Meanwhile, despite the unicorn pooping rainbow and Skittles created consumer price index and PCE, the rapidity of the price increases seems to be indicating a major hit is going to hit the “hard” data in the June reports:
All of this is going to add pressure, yet no results, on Jay Powell to cut rates this week. Unfortunately, due to the radical variability in Trump’s trade policies and tariff announcements it is almost impossible for businesses or the Fed to initiate long term policy plans with any certainty.
This means the warnings about a future slowdown will be ignored and odds are, as per history, the Federal Reserve will be too late to act once again.
