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Empire State Manufacturing: 19 Point Drop in May, Disappoints Forecast

May 16, 2016

by Jill Mislinski

This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at -9.0 (-9.02 to two decimals) shows a significant drop from last month's 9.56, and signals a decline in activity.

The Investing.com forecast was for a reading of 6.50.

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 May 2016 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers. The headline general business conditions index turned negative, falling nineteen points to -9.0. The new orders and shipments indexes also fell below zero, pointing to a decline in both orders and shipments. Survey results indicated that inventory levels were lower and delivery times shorter. The prices paid index edged down to 16.7—a sign that moderate input price increases were continuing—and the prices received index fell below zero, suggesting a small drop in selling prices. Employment levels appeared to be little changed, while the average workweek index pointed to a decline in hours worked. The six-month outlook was somewhat less optimistic than last month, and the capital spending index plummeted to 3.1, its lowest reading in more than two years.

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

Empire State Manufacturing

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. 2015 saw a gradual decline that picked up slightly in 2016. The latest reading is an 18.6 point decrease from last month.

Here is an overlay of the current and future conditions (a six month outlook).

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

ISM Manufacturing PMI

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.

Here are the remaining four monthly manufacturing indicators that we track:

Texas Manufacturing Outlook Survey (TMOS)

Kansas City Manufacturing Survey

Fifth District Manufacturing Survey (Richmond)

Philadelphia Fed Manufacturing Business Outlook Survey

Regional Fed Overview