Written by Steven Hansen
The Empire State Manufacturing Survey index significantly improved and now the index is barely in contraction.
Analyst Opinion of Empire State Manufacturing Survey
Key elements significantly improved – it seems the recession is over. Note that survey responses were collected between June 2 and June 9.
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-35.0 to -20.0 (consensus -30.0) versus the 0.2 reported. Any value above zero shows expansion for the New York area manufacturers.
- New orders sub-index of the Empire State Manufacturing improved and now is barely in contraction, whilst the unfilled orders also improved and remains deep in contraction
- This noisy index has moved from -8.6 (June 2019), 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), -48.5 (May) – and now -0.2
From the report:
Business activity steadied in New York State, according to firms responding to the June 2020 Empire State Manufacturing Survey. After breaching record lows in April and May, the headline general business conditions index climbed forty-eight points to -0.2. New orders were unchanged from last month and shipments inched higher. Delivery times and inventories were little changed. Employment levels edged slightly lower and the average workweek continued to decline. Input price increases picked up, and selling prices stabilized. Firms were notably more optimistic that conditions would be better in six months, with the index for future business conditions rising to its highest level in more than a decade.
ACTIVITY HOLDS STEADY
Manufacturing firms in New York State reported that business activity held steady in June after deteriorating sharply over the prior two months. The general business conditions index climbed nearly fifty points from the unprecedented lows in April and May, reaching -0.2. The index has climbed a total of nearly eighty points over the past two months. Thirty-six percent of respondents reported that conditions had improved in June, and an equal percentage reported that conditions had worsened. The new orders index rose forty-two points to a level of around zero, indicating that the quantity of orders was unchanged from last month, and the shipments index climbed forty-two points to 3.3, pointing to a slight increase in shipments. Delivery times and inventories both held steady.
SELLING PRICES FIRM
The index for number of employees was little changed at -3.5, pointing to a second consecutive month of slight employment declines. Notably, 18 percent of firms said that employment levels increased in June. The average workweek index increased ten points, but remained negative at -12.0, indicating an ongoing decline in hours worked, though at a slower pace than in recent months. The prices paid index increased thirteen points to 16.9, indicating that input prices increased at a faster pace than in May. The prices received index moved up to -0.6, its near zero value indicating that selling prices halted their recent decline and held steady this month.
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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 are deep in contraction.
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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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