Empire State Manufacturing Comes In Below Expectations

by: Doug Short

Until the past few months I've not routinely reported on monthly manufacturing data, regional or otherwise. However, now that I'm tracking the Big Four economic indicators, which includes Industrial Production, I'm watching these indexes more closely. This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions surprised to the downside.

There are a variety of components to the diffusion index for those who wish to dig deeper. But at the top level, here is a snapshot of New York State's General Business Conditions. The contractionary reading of -7.8 was substantially below the Briefing.com consensus of 2.0. Today's number was a decline from last month's -7.3, which was an upward revision from -8.1.

Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Click to View

Here is the opening paragraph from the report. The one positive note was the modest improvement in future business conditions.

The January 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline at a modest pace. The general business conditions index was negative for a sixth consecutive month and, at -7.8, was little changed from its recent readings. The new orders index fell four points to -7.2, and the shipments index declined a full fifteen points to -3.1. Price increases picked up, with the prices paid index rising six points to 22.6 and the prices received index rising ten points to 10.8, the highest readings for both of these indexes in several months. Labor market conditions remained weak, with the indexes for both the number of employees and the average workweek remaining below zero for a fourth month in a row. The level of optimism about the six-month outlook rose somewhat from December, but remained low compared with levels in early 2012. Significantly, the capital expenditures index fell to 4.3, its lowest reading since 2009.

Since this survey only goes back to July of 2001, we only have one complete business cycle with which to evaluate its usefulness as an indicator for the broader economy. Since the Great Recession, the index contracted for one month in late 2010 and five months in 2011 -- the latter at a shallower level than at present.

The Empire State Survey is focused on manufacturing, so it's only a subset (albeit a very large one) of the Federal Reserve's Industrial Production Index, which covers manufacturing, mining, and electric and gas utilities. The upper left corner in the four-pack below shows the recent dip in Industrial Production. Note that this chart illustrates the percent off the all-time high.

See also the latest ISM Manufacturing Business Activity Index, which has been in contraction mode for four of the past seven months. This follows 34 consecutive months of expansion following the Great Recession. The December reading for this indicator did show a slight expansion in December at 50.7.

We'll keep a close eye on some of the regional manufacturing indicators in the weeks ahead.