Empire State Manufacturing: First Contraction in Nearly Two Years

December 15, 2014

by Doug Short

This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions contracted for the first time since January 2012, 23 months ago. The headline number dropped 14 points to -3.58, down from 10.16 last month.

The Investing.com forecast was for a reading of 12.52.

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, 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.

The December 2014 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers. The headline general business conditions index dropped fourteen points to -3.6, its first negative reading in nearly two years. The new orders index also fell into negative territory, tumbling eleven points to -2.0, and the shipments index fell to -0.2. Labor market conditions were mixed, with the index for number of employees holding steady at 8.3, while the average workweek index declined to -11.5. The prices paid index was little changed at 10.4, indicating a continued modest increase in input prices, while the prices received index climbed to 6.3. Indexes for the six- month outlook continued to convey optimism, but to a somewhat lesser extent than in recent months.

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

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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 of 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. It had remained in a relatively narrow range over the past year. We saw a strong increase sustained since May of this year. But the latest number was a disappointing drop.

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

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

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