Empire State Manufacturing Survey Improves – What Is This Saying?

The Empire State Manufacturing Survey improved in February 2011.

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to improve in February.  The general business conditions index rose 3.5 points to 15.4. The new orders index edged down just slightly, to 11.8. The shipments index retreated 14 points, reversing much of January’s 18-point surge, but remained positive at 11.3.  The inventories index continued to climb from its December low, reaching its highest level since April. The index for number of employees fell, but the average workweek measure moved up. The prices paid index climbed to a two-and-a- half-year high in February, but the measure for prices received was little changed, suggesting some pressure on profit margins.  The forward-looking indexes continued to signal widespread optimism, though to a somewhat lesser degree than in January. Indexes for expected prices, both paid and received, declined moderately, after reaching multiyear highs last month.

When equities investors look as this index, they are trying to guess market movements.  The big daddy of surveys is the ISM or Purchasing Managers.  This Empire State Survey is used as a window into what the ISM survey will say.

There is a very weak correlation between ISM and the equities market – especially between the recessions of the 2000’s.  Econintersect does not use these surveys to project market movements – but is trying to gain insight into the underlying economy.

Again, surveys are not real data – just feelings of the secretary or administrative assistant the fills out the forms so the boss can send them in to the Fed.  But despite my cynicism, I hold the highest respect for the Fed and its surveys.  History has shown that they have a higher degree of accuracy then other manufacturer’s surveys.

Econintersect prefers to isolate new orders and backlog opinion results as the two primary metrics to judge the economy.  We ignore the seasonally adjustments of the opinion – and use the raw data.  Survey results are seasonally adjusted anyway in the minds of the respondents.

Backlog has been growing in the hard data so it is easy to believe the survey is likely correct.  The unadjusted new orders continued its four month downward trend line.  This is saying the YoY gains we saw in 2010 will be much smaller in 2011.

Overall the NY Fed Empire State Manufacturing Survey does not correlate well with Industrial Production.  Use the data from all surveys at your own risk.

4 replies on “Empire State Manufacturing Survey Improves – What Is This Saying?”

  1. Steven
    I don’t profess to know the detailed inner workings of the ISM or Empire surveys.
    My observations;
    I see the margin compression – probably a canary for forward P/E’s
    Inventory builds are puzzling (to me) as to why that’s positive.
    Elevated Input costs are calculated as a positive in the headline number – why?.
    Phillip Davis today;

    I’m thinking his take makes sense.

  2. Blue Jacket – not sure what inventory builds you are referring to. The hard data to date shows a continuing drop to historical lows between inventory to sales. as an old senior manager, this is where my eye goes first when i analyze this data. rising ratios signify slowing sales and / or overhead expansion.

    i see no issues yet in inventory.

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