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Economy in Brief

Empire State Manufacturing Index Recovers Somewhat in September
by Sandy Batten  September 15, 2022

• General business conditions in the FRBNY district recovered in September, rising to -1.5 after the collapse to -31.3 in August.

• However, the continued negative reading indicated that conditions continued to weaken.

• Details were stronger than the headline index with the ISM-adjusted index rising to above 50.

• Delivery times lengthened marginally but remained around pre-pandemic levels, and price indexes fell.

The Empire State Manufacturing Index of General Business Conditions rebounded to -1.5 in September after having collapsed to -31.3 in August. However, the continued negative reading indicated that business conditions weakened further in September but at a much slower pace than in August. The Action Economic Forecast Survey had expected a more modest rebound to -15.3. The headline index has been fluctuating around zero for much of this year. The percentage of respondents reporting an improvement in business conditions jumped up to 30.4% in September from 12.2% in August while the percentage reporting a weakening fell to 31.8% from 43.6% in August. The latest survey was conducted between September 2 and September 9.

The headline index simply reflects the answer given to a single question on general business conditions. Haver Analytics constructs an ISM-adjusted Empire State diffusion index using methodology similar to the ISM series and information from five component indexes in the survey. This index rose to 54.5 in September, well above the critical 50 level that separates expansion from contraction, from 45.9 in August.

As the calculated ISM-adjusted index indicates, the details in the report were much stronger than suggested by the headline figure. Both the new orders index and the shipments index rebounded to above zero in September. New orders rose to 3.7 in September from -29.6 in August and shipments jumped up to 19.6 in September from -24.1 in August. The percentage reporting an increase in new orders rose to 35.5%, its highest reading in five months, from 16.5% while the percentage reporting an increase in shipments soared to 43.8% from 15.4%. Percentages reporting declines fell for both new orders and shipments.

The unfilled orders index rose to -7.5 in September, the fourth consecutive negative reading, from -12.7 in August. Importantly, the delivery time index edged up to 1.9 in September from -0.9 in August. It has declined consistently from a recent high of 32.7 in March and now is within the range of readings that was observed prior to the pandemic, suggesting that supply-chain problems are being resolved. The inventories index rose to 9.4 in September from 6.4 in August.

Price indexes fell, pointing to a deceleration in price increases. The prices paid index fell to 39.6 in September, its third consecutive monthly decline, from 55.5 in August. The September reading was the lowest since December 2020. The percentage reporting paying higher input prices fell to 48.1%, the lowest since January 2021, from 60.9% in August. The prices received index declined to 23.6 in September, its lowest reading since February 2021, from 32.7 in August.

The number of employees index increased to 9.7 from 7.4 in August. However, the percentage of respondents increasing employment fell to 17.3% from 22.9% in August. The average workweek index rebounded in September, but remained in negative territory at -0.1 versus -13.1 in August.

Looking ahead to the next six months, respondents' optimism improved slightly, rising to 8.2 in September from 2.1 in August. Inflation was expected to remain elevated but delivery times were expected to shorten further.

The Empire State data, reported by the Federal Reserve Bank of New York, reflect business conditions in the manufacturing sector in New York State. The headline measure is constructed from the answer to a single question on business conditions. The Empire State figures are diffusion indexes, which are calculated by subtracting the percent of respondents reporting declines from the percent 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.

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