Written by Steven Hansen
The Empire State Manufacturing Survey index declined but remained in expansion.
Analyst Opinion of Empire State Manufacturing Survey
Key elements are in positive territory but declined. This report is considered a little worse than last month.
Econintersect reminds you that this is a survey (a quantification of opinion). Please see the caveats at the end of this post. However, sometimes it is better not to look too deeply into the details of a noisy survey as just the overview is all you need to know
- Expectations from Econoday were between 20.0 to 25.0 (consensus +22.0) versus the 17.4 reported. Any value above zero shows expansion for the New York area manufacturers.
- New orders sub-index of the Empire State Manufacturing declined remains in expansion, whilst the unfilled orders also declined but remains in expansion
- This noisy index has moved from -0.2 (June 2020), 17.2 (July), 3.7 (August), 17.0 (September), 10.5 (October), 6.3 (November), 4.9 (December), 3.5 (January 2021), 12.1 (February), 17.4 (March) , 26.3 (April), 24.3 (May) – and now 17.4
Business activity continued to expand in New York State, though at a slower pace than last month, according to firms responding to the June 2021 Empire State Manufacturing Survey. The headline general business conditions index fell seven points to 17.4. New orders and shipments increased moderately, and there was a rise in unfilled orders. Delivery times lengthened at a record-setting pace, and inventories edged lower. Employment levels and the average workweek continued to grow modestly, and both input prices and selling prices continued to rise sharply. Looking ahead, firms remained optimistic that conditions would improve over the next six months, with the index for future employment reaching a record high.
ACTIVITY EXPANDS FOR A TWELFTH CONSECUTIVE MONTH
Manufacturing activity grew solidly in New York State, according to the June survey, though at a slower pace than seen in the past few months. The general business conditions index moved down seven points to 17.4. Thirty-nine percent of respondents reported that conditions had improved over the month, while 21 percent reported that conditions had worsened. The new orders index fell thirteen points to 16.3, and the shipments index fell sixteen points to 14.2, pointing to ongoing gains in orders and shipments, though at a milder pace than last month. Unfilled orders were slightly higher. The delivery times index hit another record high, rising six points to 29.8, pointing to significantly longer delivery times. Inventories edged somewhat lower.
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The above graphic shows that when the index is in negative territory that it is not a signal of a recession – of 8 times in negative territory (since the Great Recession and before the COVID recession) – no recession occurred. Conversely, a positive number is likely to be indicating economic expansion. Historically, 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 of extra bells and whistles which take attention away from the core questions: (1) are orders and (2) are unfilled orders (backlog) improving? – and the answer is that the key internals are in positive territory but both declined.
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Unfilled order contraction can be a signal for a recession.
Summary of all Federal Reserve Districts Manufacturing:
Richmond Fed (hyperlink to reports):
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Kansas Fed (hyperlink to reports):
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Dallas Fed (hyperlink to reports):
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Philly Fed (hyperlink to reports):
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New York Fed (hyperlink to reports):
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Federal Reserve Industrial Production – Actual Data (hyperlink to report):
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 (red bar) to the New York Fed survey (green bar).
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.
Caveats on the use of the 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 Econoday:
The New York Fed conducts this monthly survey of manufacturers in New York State. Participants from across the state represent a variety of industries. On the first of each month, the same pool of roughly 175 manufacturing executives (usually the CEO or the president) is sent a questionnaire to report the change in an assortment of indicators from the previous month. Respondents also give their views about the likely direction of these same indicators six months ahead.
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 is 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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