This morning's weaker than expected Empire Maufacturing report was weaker than expected (-6.2 vs -4.8) although it did improve slightly from last month's depressed level of -10.4. One of the more interesting aspects of this month's report was the Prices Paid component. For each component of the report, respondents are asked for their opinion on current conditions as well as what they expect six months from now. In this month's report, the current conditions for Prices Paid rose fell from 19.15 down to 17.2 (any positive reading indicates prices are rising). Six months from now, however, the Prices Paid component was much higher, rising from 40.43 up to 44.09.
If the large gap between prices paid now and what manufacturers are expecting six months from now was a new phenomenon, it may be something to worry about. The reality, however, is that manufacturers have been expecting higher prices for quite a while now, and so far the higher prices have yet to materialize.
The chart below shows the six month average historical gap between expected prices paid six months from now and current levels. Since 2001, there have only been ten months where the six-month average spread exceeded twenty, and all but two of them have occurred this year, while the other two occurred in 2010. Based on what we have been seeing in the Empire Manufacturing report in the last two years suggests that the bark of higher prices has been worse than the actual bite.