Written by Steven Hansen
The Empire State Manufacturing Survey index improved. Overall this survey have returned to the values seen in the last 2+ years.
Analyst Opinion of Empire State Manufacturing Survey
Key elements significantly improved. I would consider this report is again better 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 +1.2 to +5.1 (consensus 4.0) versus the 12.9 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 returned to expansion this month..
- This noisy index has moved from 8.8 (February 2019), 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), 3.5 (December), 4.8 (January 2020) – and now 12.9
From the report:
Business activity picked up in New York State, according to firms responding to the February 2020 Empire State Manufacturing Survey. The headline general business conditions index moved up eight points to 12.9. The new orders index shot up 16 points to 22.1, and the shipments index climbed to 18.9. Delivery times lengthened, and inventories increased significantly. Employment expanded only modestly, and the average workweek was little changed. Input price increases slowed somewhat, and selling price increases picked up a touch. Optimism about the six-month outlook continued to be somewhat subdued, and capital spending plans remained firm.
GROWTH PICKS UP
Manufacturing firms in New York State reported that business activity grew at a faster pace than in recent months. The general business conditions index increased eight points to 12.9, its highest level since May of last year. Thirty-four percent of respondents reported that conditions had improved over the month, while 21 percent reported that conditions had worsened. The new orders index climbed 16 points to 22.1, its highest level in well over a year, indicating that orders rose significantly. The shipments index rose ten points to 18.9. Delivery times were longer, and inventories climbed.
LABOR MARKET INDICATORS SOFT
The index for number of employees edged down to 6.6, indicating that employment grew to a small degree. The average workweek held near zero, a sign that the average workweek was little changed. The prices paid index moved down seven points to 25.0, pointing to a slower pace of input price increases this month, while the prices received index edged up two points to 16.7.
OPTIMISM REMAINS SOMEWHAT SUBDUED
Indexes assessing the six-month outlook suggested that optimism about future conditions was somewhat restrained. The index for future business conditions was little changed at 22.9. The indexes for future new orders and future shipments edged lower. Employment and hours worked are expected to grow modestly in the months ahead. The capital expenditures index came in at 22.0, and the technology spending index was little changed at 21.2.
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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 improved.
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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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