Empire State Manufacturing Survey: Note the Debt

by: John Jansen

The Empire State Survey of manufacturing in the New York region posted a larger than expected decline of about 11 points following outsized gains in the prior month.

I thought the interesting part of this report was the in the supplemental question which the Fed submitted to respondents.

The Fed asked questions regarding expected levels of cash holdings and debt in the future. By reasonably wide pluralities, those who responded that they expected to hold greater piles of debt and to have less debt outstanding in the future.

That is not an indication that managers at manufacturing entities are feeling ebullient about life or the economy.

Here is the relevant paragraph:

In a series of supplementary questions (see Supplemental Reports tab), respondents were asked about their cash holdings and debt financing. More than 40 percent of manufacturers expected cash holdings to increase over the next year, while 24 percent expected them to decline—in sharp contrast to results from an identical survey conducted a year ago, when more manufacturers had expected cash holdings to decline than to rise. Respondents were also asked about expected changes in their outstanding debt; in the current survey, 39 percent of manufacturers said that they anticipated declines, while just 16 percent expected increases—again, a noteworthy change from last year’s survey, when nearly as many respondents had anticipated increases as decreases in debt. In response to a related question on current cash holdings, 34 percent of firms said that they were currently holding higher than usual (excess) cash balances, up from 20 percent in the November 2008 survey.