Empire State Survey Better than Headlines in August 2011

The Empire State Manufacturing Survey in August 2011 remained in negative territory for the third month in a row falling to -7.7.  While the composite survey results fell, important components remained well above recessionary levels.

Econintersect continues to warn readers that this is a survey (a quantification of opinion) and tends at times to correspond and and other times to conflict with the real data which will be released in the months to come. Over time, there is a general correlation with real manufacturing data – but month-to-month conflicts are frequent.

The August Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to worsen. The general business conditions index fell four points to -7.7, its third consecutive negative reading. The new orders index also remained below zero, at -7.8, while the shipments index was positive at 3.0. The unfilled orders and inventories indexes dropped further into negative territory. Price indexes continued to retreat, with the prices paid index falling fifteen points to 28.3 and the prices received index falling three points to 2.2. The index for number of employees was slightly positive, while the average workweek index was slightly negative. Future indexes weakened significantly. The future general business conditions index plummeted twenty-four points to 8.7, its lowest level since February 2009, and the future new orders and shipments indexes, while positive, fell to near-record lows, exceeded only by their September 2001 readings. The capital expenditures index was also down sharply.

In a series of supplementary questions, respondents were queried about difficulties in finding workers proficient in certain types of skills; they were also asked to estimate training costs to bring new hires up to speed.  Manufacturers’ responses to the August survey were not substantially different from those recorded in March 2007, when these questions were last asked. The workers seen as most difficult to find were those with advanced computer skills, followed by those who were punctual and reliable. Training costs to bring a typical new hire up to speed were estimated at 6½ percent of annual compensation, on average.  Firms also reported that the wage or salary of a typical worker was expected to rise by about 2½ percent, on average, over the next twelve months.

The above graphic clearly shows that the index being in negative territory is not a signal of a recession – out of 5 times in negative territory only occurred with a recession.  Of course. the jury is still out on the fifth (current) occurrence.  Econintersect believes the economy is at stall speed with no growth – but no forward looking indicator is yet signalling a dance with the dark side (recession).

This survey has a lot extra bells and whistles which distort the core questions: (1) are orders and (2) are unfilled orders (backlog) improving? Econintersect uses unadjusted data in its analysis.

We have reversed three months of declining “improving” opinion for new orders. Unfilled orders are the indicator of an expanding economy – and at 10.9% is indicating clearly the economy is not strong.

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