Written by Steven Hansen
The Empire State Manufacturing Survey index marginally improved but barely remains expansion. Overall this survey remains below values seen in the last 2+ years.
Analyst Opinion of Empire State Manufacturing Survey
Key elements declined. I would consider this report worse than last month..
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 too deeply into the details of a noisy survey as just the overview is all you need to know
- Expectations from Econoday were between +3.0 to +6.2 (consensus 4.0) versus the 3.5 reported. Any value above zero shows expansion for the New York area manufacturers.
- New orders sub-index of the Empire State Manufacturing improved and remains in expansion, whilst the unfilled orders also improved and remains in contraction.
- This noisy index has moved from 10.9 (December 2019), 3.9 (January 2019), 8.8 (February), 3.7 (March), 10.1 (April), 17.8 (May), -8.6 (June), 4.3 (July), 4.8 (August), 2.0 (September), 4.0 (October), 2.9 (November) – and now 3.5
From the report:
Business activity was little changed in New York State, according to firms responding to the December 2019 Empire State Manufacturing Survey. The headline general business conditions index held steady at 3.5. New orders were also little changed, while shipments grew modestly. Delivery times were somewhat shorter, and inventories held steady. Employment continued to expand, though the average workweek was unchanged. Input price increases continued to slow, and selling prices increased slightly. Optimism about the six-month outlook picked up, and capital spending plans were notably stronger.
GROWTH REMAINS SLUGGISH
As has been the case for the past several months, manufacturing firms in New York State reported that business activity was little changed over the month. The general business conditions index remained subdued for the seventh consecutive month, coming in at 3.5 in December. Twenty-eight percent of respondents reported that conditions had improved over the month, while 25 percent reported that conditions had worsened. The new orders index edged down three points to 2.6, indicating little change in orders. The shipments index edged up three points to 11.9, indicating that shipments increased modestly. The unfilled orders index fell six points to -13.8, indicating that unfilled orders continued to decline. Delivery times shortened, and inventories held steady.
INPUT PRICE INCREASES CONTINUE TO SLOW
The index for number of employees was unchanged at 10.4, indicating that employment expanded for the fourth consecutive month. The average workweek index was 0.8, a sign that the average workweek was unchanged. Input price increases continued to decelerate, with the prices paid index moving down five points to 15.2, a multi-year low. The prices received index was little changed at 4.3.
OPTIMISM IMPROVES
Indexes assessing the six-month outlook suggested that optimism about future conditions improved for a second consecutive month. The index for future business conditions climbed ten points to 29.8. Unfilled orders are expected to increase in the months ahead, and delivery times are expected to lengthen. The capital expenditures index climbed seven points to 26.1, and the technology spending index rose twelve points to 27.5.
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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 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 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):
z richmond_man.PNG
Kansas Fed (hyperlink to reports):
z kansas_man.PNG
Dallas Fed (hyperlink to reports):
z dallas_man.PNG
Philly Fed (hyperlink to reports):
z philly fed1.PNG
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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