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Economy in Brief

Empire State Factory Sector Index Turns Negative
by Tom Moeller  December 15, 2014

The Federal Reserve Bank of New York reported that its Empire State Factory Index of General Business Conditions declined to -3.58 during December from an unrevised 10.16 in November. The figure indicated a declining level of activity for the first time since January of last year. Despite the deterioration, the reading for all of 2014 at 11.90 was its best yearly figure since 2010. December fell short of expectations for 12.0 in the Action Economics Forecast Survey.

Based on these figures, Haver Analytics calculates a seasonally adjusted index that is compatible to the ISM series. The adjusted figure fell to 48.0, also indicating a decline in business activity and the weakest reading in twelve months. A rising level of activity is indicated by a figure above 50. Since inception in 2001, the business conditions index has had a 68% correlation with the quarterly change in real GDP.

Each of the component series deteriorated this month. The employment reading, however, remained positive at 8.33 versus 8.51 in November. During the last ten years there has been a 71% correlation between the index level and the m/m change in factory sector payrolls. The new orders figure fell to -1.97, although it's been negative twice before this year. The shipments reading of -0.22 was its first negative since June of last year and was off from 27.08 just three months ago. Unfilled orders plunged to -23.96, their lowest in a year. The delivery times figure (-14.58) indicated the quickest delivery speeds since just after the recession.

The prices paid index was little changed at 10.42, the lowest level since July 2012. A much higher 9 percent of respondents reported paying lower prices, the most since 2009. Twenty percent realized increased prices, down from the 2011 high of 70%. During the last ten years, there has been a 70% correlation between the index and the 3-month change in the intermediate goods PPI.

Looking ahead, the Empire State index of expected business conditions in six months declined to 38.58, the lowest level since July. Component declines were broad-based except inventories, which rose sharply, and prices paid which were fairly steady. Capital expenditures fell sharply to the lowest level since July.

The Empire State figures are diffusion indexes which are calculated by subtracting the percent of respondents reporting poorer business conditions from those reporting improvement. Thus, they have a good correlation with growth in the series covered. The data is available in Haver's SURVEYS database. The ISM-adjusted headline index is calculated by Haver Analytics. The series date back only to 2001. The Consensus expectation figure can be found in Haver's AS1REPNA database.

Empire State Manufacturing Survey Dec Nov Oct Dec'13 2014 2013 2012
General Business Conditions (ISM Adjusted) 48.0 52.0 50.6 49.3 52.4 50.0 51.8
General Business Conditions (Diffusion Index, %) -3.58 10.16 6.17 0.83 11.90 3.82 4.29
 New Orders -1.97 9.14 -1.73 -3.46 7.93 1.13 1.47
 Shipments -0.22 11.83 1.12 1.46 12.03 4.49 11.22
 Unfilled Orders -23.96 -7.45 -4.55 -17.11 -9.03 -8.74 -8.83
 Delivery Time -14.58 -9.57 -5.68 -3.95 -5.17 -3.52 -0.30
 Inventories -11.46 0.00 2.27 -1.32 -1.80 -5.73 -2.91
 Number of Employees 8.33 8.51 10.23 0.00 10.85 3.73 8.62
 Prices Paid 10.42 10.64 11.36 17.11 20.90 21.53 24.71
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