August 2017 Empire State Manufacturing Index Significantly Improves

Written by Steven Hansen

The Empire State Manufacturing Survey significantly improved and remains in positive territory. It was well above expectations. Important internals were mixed.

• Expectations from Bloomberg / Econoday were for a reading between 7.0 to 15.0 (consensus +9.8) versus the 25.2 reported. Any value above zero shows expansion for the New York area manufacturers.
• New orders subindex of the Empire State Manufacturing declined and the unfilled orders sub-index declined.
• This noisy index has moved from +0.6 (July 2016), -4.2 (August), -2.0 (September), -6.8 (October), +1.5 (November), +9.0 (December), +6.5 (January 2017), 18.2 February, +16.4 (March), +5.2 (April), -1.0 (May), 19.8 (June), 9.8 (July) – and now 25.2.

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 one of the more 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:

Business activity grew strongly in New York State, according to firms responding to the August 2017 Empire State Manufacturing Survey. The headline general business conditions index climbed fifteen points to 25.2, its highest level in nearly three years. The new orders index rose seven points to 20.6 and the shipments index edged up to 12.4, pointing to solid gains in orders and shipments. Delivery times continued to lengthen, and inventory levels moved lower. Labor market indicators pointed to an increase in employment and hours worked. Input prices rose at a faster clip than last month, while selling prices rose at a somewhat slower pace. Indexes assessing the six-month outlook suggested that firms were very optimistic about future conditions.

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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 10 times in negative territory (since the Great 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 extra bells and whistles which take attention away from the core questions: (1) are orders and (2) are unfilled orders (backlog) improving? – and they mixed with unfilled orders remaining negative territory.

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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 (lighter blue bar) to the Dallas Fed survey (light blue 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 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 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 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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