December 2011 Empire State Manufacturing Survey Improves Strongly

The Empire State Manufacturing Survey in December 2011 climbed well away from negative territory to a value of 9.5. This index is currently at the same level it was one year ago.

Econintersect continues to warn readers that this is a survey (a quantification of opinion). Please see caveats at the end of this post.

The Empire State Manufacturing Survey indicates that manufacturing activity improved in New York State in December. The general business conditions index rose nine points to 9.5, its highest level since May. The new orders index climbed above zero, to 5.1, and the shipments index advanced eleven points to 20.9. Input price increases steepened, with the prices paid index rising six points to 24.4. Selling prices increased only modestly, with the prices received index inching down to 3.5. Employment indexes were mixed, showing a slight increase in employment levels but a slight decrease in the length of the average workweek. Future indexes rose sharply for a second consecutive month, with the future general business conditions index climbing thirteen points to 52.3, suggesting a return to the high levels of optimism seen earlier in 2011.

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 one occurred with a 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 emphasizes these two survey points and uses unadjusted data in its analysis.

Even though the overall survey improved – respondents do not believe unfilled orders (backlog) is increasing, it has been negative all year, and, still worse, is now trending down.  Backlog contraction can be a signal for a recession.  However, new order increase is a sign of an expanding economy – and the current value is at the highest point in 2011.

Yes, there is conflicting data in this survey, but there normally is.  However, the current Empire Survey value is above levels associated with past recessions.

Caveats on the use of Empire State Manufacturing Survey:

This is a survey, a quantification of opinion rather than facts and data. Opinion surveys are useful for general impressions but Econintersect finds they do not end up being consistent compared to hard economic data that comes later, and usually miss economic turning points.

This Empire State Survey is very noisy – and currently shows recessionary conditions. And it is understood from 3Q2011 GDP that the economy was expanding.

No survey is accurate in projecting employment – and the Empire State Manufacturing Survey is no exception. Although there are 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. At the current time this survey is trending negative while Industrial Production is trending up.

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