Written by Steven Hansen
The Empire State Manufacturing Survey declined but remains in expansion. The key internals point to this being a soft report.
Analyst Opinion of Empire State Manufacturing Survey
I am not a fan of surveys – and this survey jumps around erratically – but has been relatively steady for the last year. Key internals in the report declined and I consider this a much softer report than last month.
- Expectations from Bloomberg / Econoday were for a reading between 17.8 to 20.3 (consensus 18.2) versus the 15.8 reported. Any value above zero shows expansion for the New York area manufacturers.
- New orders subindex of the Empire State Manufacturing declined but remains in expansion, whilst the unfilled orders sub-index declined but remains in expansion..
- This noisy index has moved from +5.2 (April 2017), -1.0 (May), 19.8 (June), 9.8 (July), 25.2 (August), 24.4 (September), 30.2 (October), 19.4 (November), 18.0 (December), 17.7 (January 2018), 13.1 (February), 22.5 (March) – and now 15.8–.
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 at a solid clip in New York State, according to firms responding to the April 2018 Empire State Manufacturing Survey. The headline general business conditions index, at 15.8, remained firmly in positive territory, although its seven-point decline from its March level pointed to a somewhat slower pace of growth. Similarly, the new orders index and the shipments index suggested ongoing, albeit more measured, growth, with the first index falling eight points to 9.0 and the second declining ten points to 17.5. Delivery times continued to lengthen, and inventories moved higher. Labor market indicators pointed to a small increase in employment and significantly longer workweeks. The indexes for both prices paid and prices received remained elevated. Firms’ optimism about the six-month outlook waned sharply, with the index for future business conditions plunging twenty-six points to its lowest level in more than two years.
BUSINESS ACTIVITY GROWS AT A SOMEWHAT SLOWER PACE
Manufacturing firms in New York State reported that business activity continued to expand, though at a somewhat slower pace than in March. The general business conditions index fell seven points to 15.8. Thirty-eight percent of respondents reported that conditions had improved over the month, while 22 percent reported that conditions had worsened. The new orders index fell eight points to 9.0, and the shipments index declined ten points to 17.5, indicating that orders and shipments expanded, but less so than last month. Unfilled orders edged higher, and inventories increased. The delivery time index was little changed at 15.6, a sign that delivery times continued to lengthen.
PRICE INDEXES REMAIN ELEVATED
The index for number of employees declined three points to 6.0, a level pointing to a modest increase in employment. Moving in the opposite direction, the average workweek index climbed eleven points to 16.9, indicating a significant increase in hours worked. Price increases remained elevated. The prices paid index edged down three points to 47.4, just slightly below last month’s multiyear high. The prices received index was little changed at 20.7, a level suggesting ongoing moderate selling price increases.
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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?.
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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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