Written by Steven Hansen
The Empire State Manufacturing Survey index improved but remains deep in contraction.
Analyst Opinion of Empire State Manufacturing Survey
Key elements significantly declined – it seems we are in a recession. Note that survey responses were collected between April 2 and April 10.
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 -80.0 to -50.0 (consensus -65.0) versus the 48.5 reported. Any value above zero shows expansion for the New York area manufacturers.
- New orders sub-index of the Empire State Manufacturing improved but remains in contraction, whilst the unfilled orders also declined and remained in contraction
- This noisy index has moved from 17.8 (May 2019), -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), 12.9 (February), -21.5 (March), -78.2 (April) – and now -48.5
From the report:
Business activity continued to deteriorate significantly in New York State, according to firms responding to the May 2020 Empire State Manufacturing Survey. The headline general business conditions index climbed thirty points, but remained well below zero at -48.5. New orders and shipments continued to decline sharply, though not as steeply as in April. Delivery times were slightly shorter, and inventories were slightly lower. After plunging last month, employment levels and the average workweek fell further in May. Input prices were slightly higher, and selling prices continued to decline modestly. While current conditions remained extremely weak, firms grew more optimistic that conditions would be better six months from now.
ACTIVITY CONTINUES TO PLUMMET
Manufacturing firms in New York State reported that business activity continued to decline sharply in May. While the general business conditions index climbed thirty points from the record low set last month, it came in at -48.5, its second worst reading in the survey’s history. Fifteen percent reported that conditions were better in May than they were in April, while 63 percent reported that conditions had worsened. The new orders and shipments indexes also increased, but remained well below zero at -42.4 and -39.0, respectively, pointing to another month of significant declines in orders and shipments. Delivery times were slightly shorter than last month, and inventories were slightly lower.
z empire1.PNG
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 are deep in contraction.
z empire2.PNG
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):
z empire1.PNG
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.
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>
