US: Empire State Mfg Survey

Tue Feb 17 07:30:00 CST 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 9.50 6.00 to 14.00 7.78 9.95

Manufacturers in the New York region are reporting moderate growth so far this month though details show a tangible falloff in confidence for the outlook. February's general conditions index came in at 7.78, only slightly lower than January's 9.95 and right in line with the average over the last 5 months of 7.08.

Shipments are at a solid 14.12, up from January's 9.59 and the strongest reading since September. But growth in new orders is nearly dead flat, down almost 5 points to 1.22 for the second lowest reading of the last 10 months.

Despite the slowing in orders, employment is still solid, at 10.11 vs 13.68 and 8.33 in the prior two months though, judging by the average workweek which, at minus 1.12, is in the contraction column for the 5th month in a row, the region's manufacturers may be in no hurry to hire.

A drop in optimism in the 6-month outlook may also hold back hiring. The outlook plunged nearly 23 points but is still a respectable looking 25.58 which however is the lowest level of optimism since January 2013.

Price readings are stable with inputs basically flat and outputs showing a bit of a drop off in pricing power. Delivery times show a rare slowing for this report, perhaps the result of heavy weather in the region or perhaps also supply bottlenecks tied to the ongoing labor slowdown at West Coast ports.

On the surface, this report points to stable conditions for the manufacturing sector though there are some cracks appearing. Tomorrow, the industrial production report will offer the first hard manufacturing data on January while on Thursday, the Philly Fed report will offer the second anecdotal look at conditions in February.

Market Consensus Before Announcement
The Empire State manufacturing index in January rose out of contraction to plus 9.95 versus December's slightly revised minus 1.23 (initial reading minus 3.58). New orders showed respectable strength at plus 6.09 versus a near zero reading in December while shipments rose to plus 9.95 from plus 2.25. A big positive in the report was a solid gain in employment which rose to 13.68 vs 8.33. The gain here points to confidence in Empire State's sample underscored by a more than 9 point jump in the 6-month outlook to 48.35.

The New York Fed conducts this monthly survey of manufacturers in New York State. Participants from across the state represent a variety of industries. On the first of each month, the same pool of roughly 175 manufacturing executives (usually the CEO or the president) is sent a questionnaire to report the change in an assortment of indicators from the previous month. Respondents also give their views about the likely direction of these same indicators six months ahead.

Investors track economic data like the Empire State Manufacturing Survey to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that won't generate inflationary pressures. The Empire Manufacturing Survey gives a detailed look at New York state's manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on the markets. Some of the Empire State Survey sub-indexes also provide insight on commodity prices and other clues on inflation. The Federal Reserve closely watches this report because when inflation signals are flashing, policymakers can reset the direction of interest rates. As a consequence, the bond market can be highly sensitive to this report. The equity market is also sensitive to this report because it is the first clue on the nation's manufacturing sector, reported in advance of the Philadelphia Fed's business outlook survey.