Some more grim news out of the US economy.

A gauge of the manufacturing sector in New York has fallen well below forecast in May, turning negative at -9.02, far undershooting a forecast of 6.5 expected by economists.

The Empire State manufacturing survey has now dipped to its lowest point since February, pushed lower by falling new orders, which fell to -5.54 in May compared to 11.4 growth in April.

May’s figures show the sector has fallen back in reverse after enjoying a brief respite in the two months prior.

The “survey results indicated that inventory levels were lower and delivery times shorter”, said the New York Fed.

Analysts however cautioned against reading too much into the report.

As Joshua Shapiro, chief US economist at MFR, explained:

The only reason the Empire index interests markets is that it is seen as a precursor to moves in the Philadelphia Fed index for the month, which itself is viewed as a leading indicator of the ISM manufacturing index. Sometimes this works, sometimes it does not.

Therefore, the relevance of today’s disappointing Empire State manufacturing report is questionable, and we would not advise putting too much weight on this result without corroboration from other sources of information about manufacturing sector activity in the month.

Markets have all but discounted the probability of an interest rate rise from the Fed at its latest policy meeting in June, pricing in just a four per cent probability of a change to the Fed Funds rate.

But the chances of another 25 basis points (0.25 percentage point) rate rise by the end of the year has increased from below 50 per cent to 54 per over the last week.

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