Empire State Manufacturing: Huge Drop in Rate of Expansion

October 15, 2014

by Doug Short

This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions continues is expanding at a much weaker pace. The headline number dropped 21 points to 6.17, down from 27.54 last month. That's the largest monthly decline since November 2011 and the second largest drop in the history of this series.

The Investing.com forecast was for a reading of 20.5.

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, 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 October 2014 Empire State Manufacturing Survey indicates that business activity grew modestly for New York manufacturers. The headline general business conditions index fell twenty-one points to 6.2, signaling that the pace of growth slowed significantly from last month. The new orders index dropped nineteen points to -1.7, indicating a slight decline in orders, and the shipments index fell twenty-six points to 1.1, indicating that shipments were flat. The employment index rose seven points to 10.2, pointing to an increase in employment levels, while the average workweek index fell to a level just below zero, suggesting that hours worked held steady. Both price indexes fell this month—a sign that the pace of growth had moderated for input prices and selling prices. Indexes for the six-month outlook were somewhat lower than last month, but continued to convey a high degree of optimism about future business conditions.

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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