Written by Steven Hansen
The Empire State Manufacturing Survey index significantly declined but remained in expansion.
Analyst Opinion of Empire State Manufacturing Survey
Key elements significantly declined. This is a worse report 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 15.0 to 20.0 (consensus +17.0) versus the 3.7 reported. Any value above zero shows expansion for the New York area manufacturers.
- New orders sub-index of the Empire State Manufacturing decllined and now is back into contraction, whilst the unfilled orders also declined and now is deep in contraction
- This noisy index has moved from 4.8 (August 2019), 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), -0.2 (July), 17.2 (August) – and now 3.7
From the report:
Business activity edged slightly higher in New York State, according to firms responding to the August 2020 Empire State Manufacturing Survey. The headline general business conditions index fell fourteen points to 3.7, signaling a slower pace of growth than in July. New orders were little changed, and shipments increased modestly. Unfilled orders were down, and inventories declined. Employment inched higher, while the average workweek declined. Input prices increased at about the same pace as last month, while selling prices increased for the first time in several months. Firms remained optimistic that conditions would improve over the next six months, though optimism fell for a second consecutive month.
GROWTH SLOWS FOLLOWING JULY’S STURDY INCREASE
After increasing significantly in July for the first time since the pandemic began, manufacturing activity in New York State grew only slightly in August. The general business conditions index fell fourteen points to 3.7. Thirty-four percent of respondents reported that conditions had improved over the month, while 30 percent reported that conditions had worsened. The new orders index fell sixteen points to -1.7, indicating that orders levelled off, and the shipments index fell twelve points to 6.7, pointing to a modest increase in shipments. Delivery times were steady. Unfilled orders and inventories declined.
SELLING PRICES INCREASE FOR THE FIRST TIME IN MONTHS
The index for number of employees edged up to 2.4, indicating that employment levels inched slightly higher. The average workweek index fell four points to -6.8, pointing to a decline in hours worked. The prices paid index was little changed at 16.0, signaling that input prices increased at about the same pace as last month. The prices received index climbed above zero, indicating that selling prices increased for the first time since March.
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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 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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