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posted on 15 April 2019

April 2019 Empire State Manufacturing Index Improved

Written by Steven Hansen

The Empire State Manufacturing Survey index improved and remains in expansion. Overall this survey remains in the lower range of values seen in the last two years.

Analyst Opinion of Empire State Manufacturing Survey

With both the main index and one key sub-index improving, this was a better report than last month.

Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post. However, sometimes it is better not to look too deeply into the details of a noisy survey as just the overview is all you need to know

  • Expectations from Econoday were between 5.0 to 11.5 (consensus 6.8) versus the 10.1 reported. Any value above zero shows expansion for the New York area manufacturers.
  • New orders sub-index of the Empire State Manufacturing improved and remains in an expansion, whilst the unfilled orders sub-index improved but remains in contraction
  • This noisy index has moved from 15.8 (April 2018), 20.1 (May), 25.0 (June), 22.6 (July), 25.6 (August), 19.0 (September), 21.1 (October), 23.2 (November), 10.9 (December), 3.9 (January 2019), 8.8 (February), 3.7 (March) - and now 10.1

From the report:

Business activity grew modestly in New York State, according to firms responding to the April 2019 Empire State Manufacturing Survey. The headline general business conditions index rose six points to 10.1, indicating that growth picked up somewhat but remained fairly subdued. New orders rose slightly, and shipments continued to grow modestly. Delivery times and inventories both increased. Labor market indicators pointed to ongoing employment gains and a small increase in hours worked. The prices paid and prices received indexes moved lower, pointing to a slowing in both input price increases and selling price increases. Indexes assessing the sixmonth outlook suggested that firms were much less optimistic about future business conditions than last month.

Modest Growth

Manufacturing firms in New York State reported that business activity expanded modestly. The general business conditions index increased six points to 10.1, indicating growth picked up somewhat but remained fairly subdued. Thirty-three percent of respondents reported that conditions had improved over the month, while 23 percent reported that conditions had worsened. The new orders index rose five points to 7.5, indicating orders picked up slightly. The shipments index edged up a point to 8.6, pointing to continued modest growth in shipments. Unfilled orders were little changed, while delivery times and inventories both increased.

z empire1.PNG

The above graphic shows that when the index is in negative territory that it is not a signal of a recession - of 10 times in negative territory (since the Great Recession) - no recession occurred. Conversely, a positive number is likely to be indicating economic expansion. Historically, when it does make a correct negative prediction it can be timely - this index was only two months late in going negative after what was eventually determined to be the start of the 2007 recession.

This survey has a lot of extra bells and whistles which take attention away from the core questions: (1) are orders and (2) are unfilled orders (backlog) improving? - and the answer is that the key internals were mixed with unfilled orders improving and now in expansion, and new orders declining but still in expansion.

z empire2.PNG

Unfilled order contraction can be a signal for a recession.

Summary of all Federal Reserve Districts Manufacturing:

Richmond Fed (hyperlink to reports):

z richmond_man.PNG

Kansas Fed (hyperlink to reports):

z kansas_man.PNG

Dallas Fed (hyperlink to reports):

z dallas_man.PNG

Philly Fed (hyperlink to reports):

z philly fed1.PNG

New York Fed (hyperlink to reports):

z empire1.PNG

Federal Reserve Industrial Production - Actual Data (hyperlink to report):

Holding this and other survey's Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (dark blue bar) and US Census manufacturing shipments (lighter blue bar) to the Dallas Fed survey (light blue bar).

In the above graphic, hard data is the long bars, and surveys are the short bars. The arrows on the left side are the key to growth or contraction.

Caveats on the use of Empire State Manufacturing Survey:

This is a survey, a quantification of opinion - not facts and data. Surveys lead hard data by weeks to months and can provide early insight into changing conditions. Econintersect finds they do not necessarily end up being consistent compared to hard economic data that comes later, and can miss economic turning points.

According to Econoday:

The New York Fed conducts this monthly survey of manufacturers in New York State. Participants from across the state represent a variety of industries. On the first of each month, the same pool of roughly 175 manufacturing executives (usually the CEO or the president) is sent a questionnaire to report the change in an assortment of indicators from the previous month. Respondents also give their views about the likely direction of these same indicators six months ahead.

This Empire State Survey is very noisy - and has shown recessionary conditions throughout the second half of 2011 - and no recession resulted. Overall, since the end of the 2007 recession - this index has indicated two false recession warnings.

No survey is accurate in projecting employment - and the Empire State Manufacturing Survey is no exception. Although there are some general correlation in trends, month-to-month movements have not correlated with the BLS Service Sector Employment data.

Over time, there is a general correlation with real manufacturing data - but month-to-month conflicts are frequent.



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