Empire State Manufacturing Surges To A 9-Month High

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. Friday morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions surprised to the upside.

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. Friday's surge to 10.0 from last month's -7.8 was far above the Briefing.com consensus of a flat 0.0. This is the best monthly reading since May of 2012.

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

Here is the opening paragraph from the report.

The February 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved for the first time since the summer of last year. The general business conditions index rose into positive territory, advancing eighteen points to 10.0. The new orders index also rose sharply, climbing twenty points to 13.3, and the shipments index increased to 13.1. The prices paid index pointed to a continued acceleration in selling prices, and the prices received index, while positive, inched lower. The index for number of employees rose for a third consecutive month and, at 8.1, registered its first positive reading since September, though the average workweek index remained negative. Indexes for the six-month outlook were noticeably higher and suggested a firming in the level of optimism about future business conditions.

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 a discernible and disconcerting 2012 slowdown in the rate of recovery in Industrial Production. Note that this chart illustrates the percent off the all-time high. Later this morning I will update the Big Four with the January Industrial Production data.

See also the latest ISM Manufacturing Business Activity Index, which has been hovering near contraction since June of 2012 and did slip into sight contraction in November. This follows 34 consecutive months of expansion following the Great Recession. The January reading for this indicator did show a strong advance at 53.1.

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