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Economy in Brief

Empire State Factory Sector Index Improves; Pricing Power Collapses
by Tom Moeller  May 15, 2015

The Empire State Factory Index of General Business Conditions rose to 3.09 during May after falling below break-even to -1.19 in April. The figure from the Federal Reserve Bank of New York remained well below the 27.41 peak reached last September. The latest compared to expectations for 4.0 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 gained slightly m/m to 52.1 but was below the June 2014 peak of 55.4. 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 change in real GDP.

Movement in the component series remained mixed. Modest improvement in new orders and inventories led May's gain in the total. Employment, however, moved down to its lowest point since last July. During the last ten years, there has been a 72% correlation between the index level and the m/m change in factory sector payrolls. The shipments series was roughly unchanged indicating moderate growth. Unfilled orders also were little-changed, showing falling order backlogs. The delivery times series dropped sharply, showing the quickest delivery speeds since December.

The prices paid index deteriorated to its lowest level since July 2012. Seventeen percent of respondents reported paying higher prices, down from 79% in mid-2008. Seven percent realized lower prices, nearly the most since none did early in 2012. 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 backpedaled to 29.81. Employment, unfilled orders, delivery times and capital spending each fell sharply. New orders, shipments and the average workweek were comparatively stable. The index of expected prices paid declined to the lowest level since the middle of 2009.

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 May Apr Mar May'14 2014 2013 2012
General Business Conditions Index (ISM Adjusted, >50=Increasing Activity, SA) 52.1 51.7 51.7 54.9 52.4 50.0 51.8
General Business Conditions (Diffusion Index, %, SA) 3.09 -1.19 6.90 16.95 11.83 3.87 4.22
 New Orders 3.85 -6.00 -2.39 10.03 7.89 1.16 1.46
 Shipments 14.94 15.23 7.93 16.99 12.09 4.52 11.20
 Unfilled Orders -11.46 -11.70 -13.40 -1.10 -9.03 -8.74 -8.83
 Delivery Time -10.42 -4.26 -2.06 -1.10 -5.17 -3.52 -0.30
 Inventories 7.29 2.13 -5.15 2.20 -1.80 -5.73 -2.91
 Number of Employees 5.21 9.57 18.56 20.88 10.85 3.73 8.62
 Prices Paid 9.38 19.15 12.37 19.78 20.90 21.53 24.71
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