Last month’s Empire State Manufacturing Survey dropped jaws as it dropped below zero (analysis here). In December 2010 – it has come roaring back. The two lessons are: 1) one month is not a trend; and 2) surveys are not to be taken too seriously as it is just opinion – and not data. The headlines this month:
The Empire State Manufacturing Survey indicates that conditions improved in December for New York State manufacturers. After dropping sharply into negative territory in November, the general business conditions index bounced back above zero, climbing 22 points to 10.6. The new orders and shipments indexes also rose above zero, while the unfilled orders index remained negative. The inventories index was negative, indicating that inventory levels were lower over the month. The indexes for both prices paid and prices received were positive and higher than last month, suggesting that prices rose, while employment indexes were negative, indicating that employment declined. Future indexes were generally at high levels—a sign that conditions were expected to improve over the next six months. Significantly, the future prices paid index was positive and rose sharply, indicating that respondents expected input prices to accelerate.
Again, surveys are not real data – just feelings of the secretary or administrative assistant the fills out the forms so the boss can send them in to the Fed. But despite my cynicism, I hold the highest respect for the Fed and its surveys. History has shown that they have a higher degree of accuracy then other manufacturer’s surveys. Yet, last month the survey produced a very wrong answer which was contradicted by November’s Industrial Production.
The problem with surveys is that they try to quantify and weight opinion. Many survey points have nothing to do with judging whether the economy (or even manufacturing) is expanding. Econintersect prefers to isolate new orders and backlog opinion results as the two primary metrics to judge the economy.
From the above graph, we can see backlog is bouncing around in a narrow range – but is in a three month uptrend. Depending on the source, backlog is improving or less bad.
New orders, from the Empire State Survey – tells us nothing.
You would expect some correlation between Empire State Survey new orders and industrial production – yet there is none. It is too bad that surveys are not required to comply with truth in labeling laws – use of this data is for entertainment purposes only.
Industrial Production Considered Flat for the Last Two Months by Steven Hansen
Empire State Manufacturing Survey Crashes by Steven Hansen