April 2013 Empire State Survey Continues to Say Manufacturing Expanding

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The Empire State Manufacturing Survey (manufacturing in New York State) in April 2013 shows manufacturing has now expanded for three months in a row.

  • This noisy index has moved from 6.6 (April 2012), 17.1 (May), 2.3 (June), 7.4 (July), -5.9 (August), -10.4 (September), -6.2 (October), -5.2 (November), -8.1 (December), -7.8 (January 2013). 10.0 (February) , 9.2 (March) – and now 3.1.
  • Expectation was for a reading of 5.0 versus the 3.1 reported
  • New orders sub-index also shows this sector is expanding (although less good also), while unfilled orders continues to say this sector is slightly contracting.

As this index is very noisy, it is hard to understand what these massive moves up or down mean – however this regional manufacturing survey is normally on of the most pessimistic.

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 April 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved slightly. The general business conditions index fell six points, but at 3.1, remained positive for a third consecutive month. Similarly, the new orders index was lower than last month but still positive, dipping six points to 2.2, and the shipments index fell to 0.8. The indexes for both prices paid and prices received inched higher—a sign that the pace of input and selling price increases had picked up over the month. Employment indexes climbed, showing a modest increase in both employment levels and hours worked. Indexes for the six-month outlook pointed to a moderate degree of optimism about future conditions.

In a series of supplementary questions—previously posed in surveys conducted in April 2012 and earlier—respondents were asked how much difficulty they had experienced finding workers proficient in mathematical, computer, interpersonal, and other workplace skills. As in the earlier surveys, the most widespread difficulties related to the search for workers with advanced computer skills. In addition, a skill set that has reportedly grown harder to find is punctuality and reliability. Responses to other supplemental questions indicated that firms expected wages to rise by roughly 2½ percent, on average, over the next twelve months, and that, for nearly a third of firms, retaining skilled workers would become increasingly difficult in the year ahead.

/images/z empire1.PNG

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.

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 trending down; it has been negative all 2011 and 2012 (and now has been positive 3 months in a row). Unfilled order contraction can be a signal for a recession.

It is likely that looking too closely at the detail of this survey may be counterproductive. Holding this and other surveys 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 (darker green bar).

Comparing Surveys to Hard Data

/images/z survey1.png

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):

/images/z richmond_man.PNG

Kansas Fed (hyperlink to reports):

/images/z kansas_man.PNG

Dallas Fed (hyperlink to reports):

/images/z dallas_man.PNG

Philly Fed (hyperlink to reports):

/images/z philly fed1.PNG

New York Fed (hyperlink to reports):

/images/z empire1.PNG

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.

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