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Economy in Brief

Empire State Factory Conditions Deteriorated M/M But Remain Improved From Earlier Low
by Tom Moeller June 15, 2009

This month's Empire State Index of manufacturing sector activity, reported by the Federal Reserve Bank of New York, fell versus May. Nevertheless, the latest reading remained very much improved from the low of this past Winter and, as a result, suggests that recessionary forces have moderated. The reading of -9.41 compared with -4.55 in May. The index reached a level of -38.23 this past March and the latest level compared to Consensus expectations for a reading of -4.5.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click here.

The figure is a diffusion index. Since the series' inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.

Deterioration in the component of the June survey was limited to shipments and inventories. Otherwise, the new orders index improved modestly to -8.15 and that compares to March's reading of -44.76. Twenty-five percent of survey participants reported higher new orders, versus the March low of nine percent. The employment index also improved to the highest level since last October. Fourteen percent of respondents reported higher employment versus the March low of 4.5%. In the history of the NY employment index, there has been an 87% correlation between it and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. The length of the average workweek also grew.

Price deflation also moderated as the rate of contraction in the factory sector slowed. The price index rose to its highest level since late last year as the number of respondents reporting lower prices fell sharply to 16%, half of the percentage of this past January. Only 10% of respondents reported paying higher prices and that was near the series' low. Since inception in 2001, there has been a 76% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.

The Empire State index of expected business conditions in six months improved during June to the highest level since mid-2007. The subseries for shipments, employment and capital expenditures jumped while prices paid and new orders remained off their lows.

The Empire State data is available in Haver's SURVEYS database.

Large Banks and Small Banks in an Era of Systemic Risk Regulation is this morning's speech by Fed Governor Daniel K. Tarullo and it can be found here

Empire State Manufacturing Survey June May June '08  2008 2007 2006
General Business Conditions (diffusion index, %)   -9.41 -4.55 -8.12 -10.10 17.23 20.24
   New Orders -8.15 -9.01 -3.73 -6.25 15.71 20.11
   Employment -21.84 -23.86 1.16 -5.36 11.28 12.62
Prices Paid -5.75 -11.36 66.28 46.99 35.64 41.88
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