Empire State Manufacturing Survey: Continued Modest Growth

| About: Industrial Select (XLI)

By Doug Short

This morning, we got the latest Empire State Manufacturing Survey, which shows continued modest growth. The diffusion index for General Business Conditions at 6.5 was little changed from the previous month's 7.6, which was a downward revision from 9.0.

The Investing.com forecast was for a reading of 8.5.

The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, and a level below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.

Here is the opening paragraph from the report.

Business activity continued to grow modestly in New York State, according to firms responding to the January 2017 Empire State Manufacturing Survey. The headline general business conditions index was little changed at 6.5. The new orders index fell to 3.1, pointing to a small increase in orders, and the shipments index held steady at 7.3. Inventories edged higher for the first time in more than a year. Labor market conditions remained weak, though less so than in recent months, with manufacturers reporting a slight decline in employment and somewhat shorter workweeks. Both input prices and selling prices increased more rapidly this month, with the prices paid index climbing to its highest level in nearly three years, and the prices received index also jumping to a multiyear high. Indexes for the six-month outlook continued to convey a high degree of optimism about future conditions, with the index for future business conditions matching last month's nearly five-year high. [source]

Here is a chart of the current conditions and its 3-month moving average, which helps clarify the trend for this extremely volatile indicator:

Click this link to access a PDF set of charts of the individual components over the past 12 months.

Since this survey only goes back to July 2001, we only have one complete business cycle with which to evaluate its usefulness as an indicator for the broader economy. Following the Great Recession, the index has slipped into contraction multiple times, as the general trend slowed. 2015 saw a gradual decline that picked up slightly in 2016.

Here is an overlay of the current and future conditions (a six-month outlook). We see that in the wake of the Trump election, the future conditions index is hovering at a five-year high.

Meanwhile, here's another look at the latest ISM Manufacturing Business Activity Index.

Let's compare all five Regional Manufacturing indicators. Here is a three-month moving average overlay of each since 2001 (for those with data).

Here is the same chart including the average of the five. Readers will notice the range in expansion and contraction between all regions.

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

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