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Economy in Brief


by Robert Brusca Empire Strikes Back! June 15, 2007

This chart plots the Empire State headline index along with my ‘invented’ Empire State index constructed using ISM-type weights applied to Empire state components. What we see is that the jump in the index in June is supported by a push in the underlying components, but not fully supported. The barometer reading is structurally stronger than the weighted component reading. And jumps in the weighted index are usually exceeded by jumps in the barometer.

Another finding of this comparison is that with the weighted index the series still seems to be in a process of decay with successive highs at successively lower levels. But the headline series does not display this property, despite having some recent severe weakness.

The gap between the weight index and surveyed barometer that is this report’s headline represents a reality gap of sorts. But often mangers know more than the data. Often they are optimistic for reasons that their month-ahead responses cannot/do not reveal.

This month that is a hard conclusion to come to since the outlook index has stepped back a bit. Yet it rose strongly last month and has retained much of last month’s improvement. It is holding to a reasonably firm level. So some degree of optimism does seem to be warranted.

The table below catalogs and provides some analytical benchmarks for the Empire State Survey issued by the Federal Reserve Bank of New York.

Under the yellow bars in the table a series of statistics depicts the percentile placement of the various indicators in their respective ranges for both the current and future indexes. The future index is middling at about 5 percentage points or so below the midpoint of its historic range. For the current index the range position is much higher in the top quartile while orders, a key outlook component, are just above average at the fifty-fifth percentile. All current readings except prices received, employment and hours worked are also above their 12-month averages. The outlook index is below its 12-month average.

On balance, the Empire State index is an upbeat assessment and it draws from readings on the month ahead statistically which is the current month, June. It is a relatively new report and won’t trump reports of weakness from many other sources. But it does encourage us to look for stronger Manufacturing reports as other manufacturing surveys prepared for release. Couple that with the rise in durable goods orders, the rebound and hold on industrial output, and there is room for optimism on Manufacturing. Inventories remain a bit of a problem in this sector as we have seen in previous reports and we can note that the Empire State survey shows inventories in the top 20th percentile of their range.

Empire State Index Summary
  General New Shipm Unfilled Delivery Inventory Prices Prices Employ Avg Outlook
  Business Orders   Orders Time   Paid Received   Hrs Index
Jun-07 25.75 17.19 29.80 -2.13 -1.06 3.19 42.55 9.57 3.37 3.19 44.14
May-07 8.03 8.02 14.13 0.00 -4.44 0.00 34.44 15.56 9.67 11.11 49.79
Apr-07 3.80 3.94 8.66 -8.33 1.19 7.14 40.48 7.14 5.42 1.19 33.85
Mar-07 1.85 3.14 18.54 -8.14 -4.65 -4.65 30.23 10.47 11.37 12.79 35.17
Feb-07 24.35 18.93 27.07 0.00 -3.23 -7.53 26.88 12.90 12.70 5.38 38.49
Jan-07 9.13 10.26 16.11 -8.51 -5.32 -19.15 35.11 19.15 6.91 -1.06 32.54
Dec-06 22.19 22.52 27.60 -14.61 1.12 -7.87 28.09 13.48 18.60 7.87 41.85
Averages                      
3mo 12.53 9.72 17.53 -3.49 -1.44 3.44 39.16 10.76 6.15 5.16 54.80
6-mo 12.15 10.25 19.05 -4.52 -2.92 -3.50 34.95 12.47 8.24 5.43 52.25
12-mo 15.62 13.84 20.14 -4.06 -0.87 -4.18 36.60 14.17 11.42 8.95 50.52
Since Jan-02                      
Max 38.9 38.01 44.33 20.83 12.5 8.62 60.58 27.73 23.98 29.17 67.52
Min -17.08 -9.04 -2.59 -19.57 -15 -20 -2.04 -18.89 -11.62 -11.96 31.37
Avg 17.42 17.38 20.59 -1.74 -1.25 -3.45 33.13 5.66 7.89 7.35 47.67
% of:                      
Range 76.5% 55.7% 69.0% 43.2% 50.7% 81.0% 71.2% 61.0% 42.1% 36.8% 35.3%
Ranking 77.8% 50.8% 79.4% 46.0% 49.2% 81.0% 60.3% 44.4% 30.2% 33.3% 44.4%
raw rank 14 31 13 34 32 12 25 35 44 42 35
out of: 63 63 63 63 63 63 63 63 63 63 63
% of: FUTURE INDEX SUMMARY STATISTICS
Range 35.3% 31.6% 41.4% 37.8% 51.3% 58.4% 60.9% 64.3% 35.4% 20.2% 27.7%
Ranking 44.4% 33.3% 33.3% 15.9% 54.0% 65.1% 55.6% 47.6% 19.0% 25.4% 33.3%
raw rank 35 42 42 53 29 22 28 33 51 47 35
out of: 63 63 63 63 63 63 63 63 63 63 63
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