Empire State Manufacturing Improves Modestly, But Details Show Serious

Until the past few months I've not routinely reported on monthly manufacturing data, regional or otherwise. However, now that I'm tracking the Big Four economic indicators, which includes Industrial Production, I'm watching these indexes more closely.

Yesterday we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions beat expectations, posting an expansionary reading of 7.8. The Briefing.com consensus was for a slight expansion to 0.8. However, a quick look at the report shows that several of the key components are in contraction mode: New Order -6.8, Shipments -11.8, Unfilled Orders -14.5, Delivery Time -6.5, Inventories -11.3 and Average Employee Workweek -11.3. The two big positives were Price Paid +21.0 and Prices Received +11.3.

Bottom line: The headline diffusion index looks deceptively better than the underlying data.

Here is the opening paragraph from the report.

The June 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved modestly. The general business conditions index—the most comprehensive of the survey's measures—rose nine points to 7.8. Nevertheless, most other indicators in the survey fell. The new orders index slipped six points to -6.7, the shipments index fell twelve points to -11.8, and the unfilled orders index fell eight points to -14.5. The prices paid index held steady at 21.0, while the prices received index rose seven points to 11.3. Labor market conditions worsened, with the index for number of employees dropping to zero and the average workweek index retreating ten points to -11.3. Continuing the trend seen in the past few months, indexes for the six-month outlook declined, suggesting that optimism about future conditions was weakening further .

Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Click this link to access a PDF set of charts of the individual components over the past 12 months.

Since this survey only goes back to July of 2001, we only have one complete business cycle with which to evaluate its usefulness as an indicator for the broader economy. Since the Great Recession, the index contracted for one month in late 2010 and five months in 2011 -- the latter at a shallower level than at present.

The Empire State Survey is focused on manufacturing, so it's only a subset (albeit a very large one) of the Federal Reserve's Industrial Production Index, which covers manufacturing, mining, and electric and gas utilities. The upper left corner in the four-pack below shows a discernible and disconcerting 2012 slowdown in the rate of recovery in Industrial Production. Note that this chart illustrates the percent off the all-time high. Later this morning I will update the Big Four with the January Industrial Production data.

See also the latest ISM Manufacturing Business Activity Index.

I'll keep a close eye on some of the regional manufacturing indicators in the months ahead.