January 2012 Empire State Survey Indicating Moderate Expansion

The Empire State Manufacturing Survey in January 2012 continued on its third month of climb from negative territory.  Manufacturing expansion is indicated by positive numbers to this index:

  • The index rose from a value of 9.5 to 13.5. This index is at the highest level since March 2011.
  • Expectation was for a reading of 10.0

This index is now improving, and well above levels associated with past recessions.  As a subjective statement, this index is showing manufacturing has entered “moderate” expansion territory.

Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post.

From the ISM report:

The Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State in January. The general business conditions index climbed points to 13.5. The new orders index rose eight points to 13.7 and the shipments index inched up to 21.7. The prices paid index was positive and slightly higher than it was last month while the prices received index jumped twenty points to 23.1, indicating a significant pickup in selling prices. Employment indexes were positive and higher, pointing to higher employment levels and a longer average workweek. Future indexes conveyed a high degree of optimism about the six-month outlook, with the future general business conditions index rising nine points to 54.9, its highest level since January 2011.

The above graphic clearly shows that the index being in negative territory is not a signal of a recession: of 5 times in negative territory only one occurred with a recession.  Conversely, a positive number is likely to be indicating economic expansion.  This index was only two months late in going negative after what was eventually determined to be the start of the 2007 recession.

It is likely you can take to the bank that the economy is expanding based on this index.

This survey has a lot extra bells and whistles which take attention away from the core questions: (1) are orders and (2) are unfilled orders (backlog) improving? Econintersect emphasizes these two survey points.

Even though the overall survey improved – respondents do not believe the level of unfilled orders (backlog) is increasing; it has been negative all 2011 (and now into 2012).  Unfilled order contraction can be a signal for a recession, but new order increase is a sign of an expanding economy – and the current value is at the highest point since May 2011.  Thus there is a certain amount of contradiction with the two core numbers.

However, it must be noted that subsequent hard data has been  showing an improvement in unfilled orders where this index is showing contraction.

Yes, there is conflicting data in this survey, but there normally is. However, the current Empire Survey value overall is above levels associated with past recessions.

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.

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. At the current time this survey is trending negative while Industrial Production is trending up.

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