Written by Steven Hansen
The Empire State Manufacturing Survey (manufacturing in New York State) in November 2012 shows manufacturing contraction continues to be forecast for a fourth month after the previous eight months of expansion. Expansion is indicated by positive numbers in this index.
- This noisy index has moved from 20.2 (March), 6.6 (April), 17.1 (May), 2.3 (June), 7.4 (July), -5.9 (August), -10.4 (September), -6.2 (October) – and now only slightly “less bad” at -5.2 (November).
- Expectation was for a readings of -8.5 to -8.0
- New orders expanded at a reading of +3.1, and unfilled orders were “less bad” at -11.3
As this index is very noisy, it is hard to understand what these massive moves up or down mean – however many surveys now are in negative territory. There may be a Hurricane Sandy effect – please the the release from Liberty Street Economics.
Flash release from Liberty Street Economics (NY Fed)
Just Released: November Empire State Manufacturing Survey Points to Storm’s EffectsJason Bram and Richard Deitz
The results of this morning’s November Empire State Manufacturing Survey point to a slight decline in business conditions in New York’s manufacturing sector in the wake of “superstorm” Sandy. The headline general business conditions index was little changed from last month and, at a level of -5.2, suggests that overall, business activity was modestly lower than in our previous survey. Employment levels were noticeably down, as the employment index fell 14 points to -14.6, its lowest level since mid 2009. On the upside, however, the new orders index climbed into positive territory and the shipments index shot up 21 points to 14.6, its highest level since May.
The headline index might have been expected to look worse. The November survey was in the field after the storm—from November 5 to November 13—and many of the respondents were affected. In fact, supplemental questions in the report asked firms whether their businesses were disrupted by the storm. Impacts were widespread and substantial for downstate respondents, while the effects on upstate firms tended to be less prevalent. All of the firms from the New York City area were disrupted—in most cases, severely—with 70 percent of downstate businesses stating that losses of power and communications were major factors in reducing business activity. In upstate New York, just 21 percent of firms reported that business activity was interrupted for a day or more, mostly due to disruptions to their supply chains and problems from their customers who were also affected by the storm.
Manufacturers often make up for lost time by increasing output when they resume operations, so disruptions may not have resulted in any loss in business for those able to compensate. However, some affected businesses surely experienced damage and output losses that they will not be able to make up. We expect to have some information about the nature of these losses in December from supplemental questions that will be asked next 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 to deeply into the details of a noisy survey as just the overview is all you need to know.
From the report:
The November Empire State Manufacturing Survey indicates that conditions for New York manufacturers declined at a modest pace. The general business conditions index was negative for a fourth consecutive month, but was little changed at -5.2. The new orders index rose above zero for the first time since June, although it was only slightly positive at 3.1. The shipments index shot up twenty-one points to 14.6, its highest level since May. The prices paid index fell three points to 14.6, indicating a modest increase in input prices, and the prices received index held steady at 5.6. Labor market conditions were noticeably weaker. The index for number of employees fell fourteen points to -14.6, a sharp drop to its lowest level since 2009, and the average workweek index drifted down to -7.9. Indexes for the six-month outlook were mixed, with the future general business conditions index declining seven points to 12.9, while the future new orders and shipments indexes rose.
The above graphic shows that when the index is in negative territory that 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.
The negative numbers this month indicate there may be an increased chance that we are approaching a recession. However, this behavior has given false signals in the past.
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.
Respondents believe the level of unfilled orders (backlog) is declining; it has been negative all 2011 (and now into 2012). Unfilled order contraction can be a signal for a recession, but new order continued contraction is a far more ominous sign.
Survey respondents were also asked about Hurricane Sandy.
In a series of supplementary questions, firms were asked about the extent to which their businesses were affected by the “superstorm” Sandy. Among firms based in upstate New York, only 21 percent reported any loss of activity due to the storm—and in most cases, for no more than one day. However, 100 percent of firms in the New York City area reported some reduction in activity. The most widely cited factors contributing to a reduction in business activity were loss of power and loss of communications—reported as major factors by more than 70 percent of downstate businesses.
It is likely that looking too closely at the detail of this survey may be counterproductive. 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 Empire State Survey (green bar).
Comparing Surveys to Hard Data
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.
Summary of all Federal Reserve Districts Manufacturing:
Richmond Fed (hyperlink to reports):
Kansas Fed (hyperlink to reports):
Dallas Fed (hyperlink to reports):
Philly Fed (hyperlink to reports):
/images/z philly fed1.PNG
New York Fed (hyperlink to reports):
Federal Reserve Industrial Production – Actual Data (hyperlink to report)
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 Bloomberg:
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001. Each month, new data will be released and the previous month’s data will be revised slightly. Once per year, all data will undergo a benchmark revision.
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.