Empire State Manufacturing Index Improves; Hiring Weakens

The Empire State Manufacturing Index of General Business Conditions rose to 4.3 during July after deteriorating sharply in June to -8.6, the first negative index level since October 2016. The Action Economics Forecast Survey expected a July reading of 2.0. The Empire State data, reported by the Federal Reserve Bank of New York, reflect business conditions in New York, northern New Jersey and southern Connecticut.

Haver Analytics calculates a seasonally adjusted index that is comparable to the ISM series. The calculated figure improved to 49.0 from 48.4, but remained below the high of 58.0 in June of 2018. During the last ten years, there has been a 41% correlation between the index level and the quarter-to-quarter change in real GDP.

Movement amongst the sub-series was mixed. The new orders measure indicated less weakness but remained sharply below the high nine months ago. The unfilled orders series also was less negative The delivery times figure showed that delivery speeds quickened m/m but remained faster than early last year. The shipments reading retreated modestly m/m to the lowest level in two and a half years. The inventories index eased further into negative territory, indicating a sizable degree of inventory liquidation. Working higher, the delivery time index turned positive and suggested somewhat slower product delivery speeds.

The employment series declined further into negative territory, indicating the greatest cutback in payrolls since January 2016. A slightly lessened 10% of respondents reported higher employment, but a greatly increased 20% showed a decline. During the last ten years, there has been a 42% correlation between the employment index and the month-to-month change in factory sector payrolls. The employee workweek reading improved modestly, but remained sharply below its high reached last April.

The prices paid index fell slightly and remained sharply below its May 2018 high. A reduced thirty-two percent of respondents indicated higher prices this month while an increased seven percent reported a decrease. The prices received index fell to the lowest point since May 2017.

The series measuring expectations for business conditions in six months increased m/m and recovered its June decline. Most component series improved including new orders, order backlogs and inventories. The employment reading fell for the third straight month. The capital spending intentions index rebounded modestly following a sharp drop.

The Empire State figures are diffusion indexes, which are calculated by subtracting the percent of respondents reporting declines from those reporting gains. The data are available in Haver's SURVEYS database. The ISM-adjusted headline index dates back to 2001. The Action Economics Forecasts can be found in Haver's AS1REPNA database.