Empire Tech Spending Intentions Slump, But Equities Are Painting A more Resilient Picture

The US Empire manufacturing reading for May slumped, printing at -31.8, versus -3.9 expected (prior was 10.8). The market impact following the release wasn't large, as it tends to be quite a volatile series, particularly relative to other business surveys. Still, we did see fresh lows back to the first half of 2020 in terms of the sub-component related to 6 month ahead technology spending intentions (+1.9 from +10.3).

• The chart below plots the y/y change in such intentions (smoothed as a 3 month moving average) against y/y global semiconductor sales.
• Waning tech spending intentions suggests fairly limited prospects for a sharp turnaround in global semi conductor sales, in the near term at least. Up to March, sales to the US were -16.43% y/y, to China -34.05%, rest of Asia Pac -22.2% y/y, while sales to the EU and Japan also slipped into negative y/y territory.
• Next Monday we also get the first 20-days export data for May in South Korea, which will provide an update on semiconductor exports, which have remained depressed in the first 4 months of this year.

Fig 1: US Empire Tech Spending Intentions Versus Global Semiconductor Sales

Source: MNI - Market News/Bloomberg

• Still, the SOX semiconductor equity index is painting a slightly less bearish picture. Whilst the equity index is still down in y/y terms, we are well past the trough point from late last year near -36% y/y.
• If the equity index can sustain current levels, we will move back into positive y/y territory for June. This would present a less adverse tech spending backdrop, at least if historical correlations hold.

Fig 2: US Empire Tech Spending Intentions Versus SOX Equity Index

Source: MNI - Market News/Bloomberg