All eyes on Federal Reserve after shock Empire State index drop

Chris Papadopoullos
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Janet Yellen says a rate hike will depend on economic data (Source: Getty)
American traders will be poring over crunch sets of data this week after a key index plummeted to its lowest level since the depths of the recession in 2008-09.

The Empire State index – one of several widely watched barometers of manufacturing in the US – collapsed to a score of minus 14.9 in August from July’s positive score of 3.9.

Most economists had forecast a slight upward movement.

The shock result lifts the chance of America’s highly anticipated rise in interest rates being delayed to the end of the year.

Federal Reserve chair Janet Yellen said recently that a September hike, which had been expected by analysts, was not necessarily on the cards, but would depend on economic data published in the run-up to next month’s meeting.

The US is expected to be the first major economy to hike interest rates since 2011. But other figures due to be published this week could prompt a delay. Thursday sees the release of the Philadelphia Federal index – a survey of manufacturers in Pennsylvania, New Jersey and Delaware.

“The Philadelphia Fed survey now takes on added importance as it will provide a better picture of whether the weakness in current conditions implied by the Empire survey is part of a broader trend,” said analysts at Deutsche Bank.

An economy-wide survey will be published on Friday.

“If you get those following [this trend, then] we’d definitely be starting to talk about whether there’s a reason to be concerned and it would begin to become an issue the Fed started talking about as well,” Bruce Kasman, head of economic research at JP Morgan, told City A.M..

“It [a September rate hike] is a close call, and when it’s a close call the incoming data has the potential to influence the decision,” he added.

American manufacturers have been hindered by the strength of the dollar, which has made their goods more expensive in the rest of the world.

A recent slowdown in China is also a concern, not just because the country will demand fewer US-made goods, but because its economy is export-dependent and the slowdown is symptomatic of weak global demand.

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