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Economy in Brief

Empire State Factory Conditions Improve; Inventories End Decumulation
by Tom Moeller February 16, 2010

Business conditions in the Northeast improved this month. The Federal Reserve Bank of New York reported that its February Empire State Factory Index of General Business Conditions rose to 24.91, the highest level since October, and remained near the highest level since 2004. The latest reading compares to sharply negative levels at the recession low and suggests positive growth in factory sector activity. The latest level exceeded Consensus expectations for a reading of 18.0.

The figure is a diffusion index. Since the series' inception in 2001, there has been a 74% 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.

Amongst the separate survey questions, the inventory series improved the most this month to 0.0 from -17.3, which was the first reading out of negative territory since August 2008. Most other series fell m/m except employment which improved to its highest level since October. There has been an 87% correlation between the employment index and the three-month growth in factory sector employment as reported by the Labor Department. 

The prices paid index held near the highest level since September 2008 and was up sharply from the early-2009 low. Since inception in 2001, there has been a 77% 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 slipped during February from levels which were the highest since early 2004. The inventory subseries rose sharply to its highest since early 2008.

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. Each index is seasonally adjusted. 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 Empire State data is available in Haver's SURVEYS database.

Equipping financial regulators with the tools necessary to monitor systemic risk is last Friday's Senate testimony by Fed Governor Governor Daniel K. Tarullo and it is available here.

Empire State Manufacturing Survey February January December February '09  2009 2008 2007
General Business Conditions (diffusion index, %)   24.91 15.92 4.5 -31.61 -2.76 -9.97 17.22
   New Orders 8.78 20.48 2.77 -27.20 -2.52 -6.22 15.70
   Inventories 0.00 -17.33 -18.42 -8.05 -22.89 -7.87 -3.95
   Employment 5.56 4.00 -5.26 -39.08 -17.28 -5.36 11.28
Prices Paid 31.94 32.00 19.74 -13.79 1.33 46.99 35.64
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