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Economy in Brief

Empire State Business Conditions Deteriorate Except Jobs & Pricing
by Tom Moeller May 17, 2010

Recent improvement in business conditions in the Northeast region of the country lost momentum this month. The Federal Reserve Bank of New York reported that its May Empire State Factory Index of General Business Conditions fell to 19.11, its lowest level this year. Nevertheless, the May level suggests positive growth in factory sector activity but it fell short of Consensus expectations for a reading of 30.0.

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 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 amongst the separate survey questions was widespread this month including new orders, shipments and inventories. The employment index, however, improved to 22.37 which was the series' highest level. Since inception 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.

Continuing it earlier upward momentum, the prices paid index rose to 44.74, its highest since September 2008. Since inception 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 fell m/m to its lowest level since August. Virtually all of the component series fell with the exceptions of capital expenditures and technology spending. They both remained near the highest levels since before the recession began.

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.

Empire State Manufacturing Survey May April March May '09  2009 2008 2007
General Business Conditions (diffusion index, %)   19.11 31.86 22.86 -5.64 -2.76 -9.97 17.22
   New Orders 14.30 29.49 25.43 -8.63 -2.52 -6.22 15.70
   Inventories 1.32 11.39 4.94 -35.96 -21.59 -7.87 -3.95
   Employment 22.37 20.25 12.35 -23.86 -17.28 -5.36 11.28
Prices Paid 44.74 41.77 29.63 -11.36 1.33 46.99 35.64
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