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March 2012 Empire State Survey Still Showing Improving Economy

Written by Steven Hansen

The Empire State Manufacturing Survey (manufacturing in New York State) in February 2012 continued on its fourth month of climb from negative territory. Manufacturing expansion is indicated by positive numbers to this index:

  • The index rose statistically little from 19.5 to 20.2. This index is at the highest level since June 2010.
  • Expectation was for a readings of 15.0

This index 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.  However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know.

From the report:

The March Empire State Manufacturing Survey indicates that manufacturing activity in New York State expanded at a moderate pace. The general business conditions index was little changed at 20.2, its fourth consecutive positive reading. The new orders and shipments indexes were both positive but slightly lower, indicating continued growth in orders and shipments, though at a somewhat slower pace than in the last month. The prices paid index rose a steep 25 points to 50.6, its highest level since summer 2011, and the prices received index was positive but two points lower than in February.

Employment indexes rose and indicated continued growth in both employment levels and the average workweek. Indexes for the six-month outlook, though generally somewhat lower than they were last month, conveyed a  degree of optimism, and the capital spending index rose to its highest level in more than a year.

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. However, 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.

There is a high probability 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.

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. It is likely looking too closely at the detail may be counterproductive with this survey when the main index number tracts the economy reasonable well.

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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