Written by Steven Hansen
The Empire State Manufacturing Survey index declined but remained in expansion.
Analyst Opinion of Empire State Manufacturing Survey
Key elements were mixed. This report is similar to last month.
Econintersect reminds you that this is a survey (a quantification of opinion). Please see the 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 4.5 to 10.0 (consensus +7.2) versus the 4.9 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 improved but remain in contraction
- This noisy index has moved from 3.5 (December 2019), 4.8 (January 2020), 12.9 (February), -21.5 (March), -78.2 (April), -48.5 (May), -0.2 (June), 17.2 (July), 3.7 (August), 17.0 (September), 10.5 (October), 6.3 (November) – and now 4.9
From the report:
Business activity edged slightly higher in New York State, according to firms responding to the December 2020 Empire State Manufacturing Survey. The headline general business conditions index was little changed at 4.9. New orders increased marginally, and shipments were modestly higher. Inventories continued to move lower, and delivery times edged up. Employment posted its strongest gain in months, and the average workweek lengthened somewhat. Input prices increased at the fastest pace in two years, while selling prices increased at about the same pace as last month. Looking ahead, firms remained optimistic that conditions would improve over the next six months.
VERY LITTLE GROWTH IN ACTIVITY
Like last month, manufacturing activity in New York State expanded only to a small degree in December. The general business conditions index held steady at 4.9. Twenty-six percent of respondents reported that conditions had improved over the month, while 21 percent reported that conditions had worsened. The new orders index was little changed at 3.4, indicating a slight increase in orders, and the shipments index climbed six points to 12.1, pointing to a relatively substantial increase in shipments. Delivery times were somewhat longer, and inventories edged lower.
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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 8 times in negative territory (since the Great Recession and before the COVID 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):
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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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