US: Empire State Mfg Survey

Mon Mar 16 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 7.00 0.00 to 10.00 6.90 7.78

General conditions so far in March, at an index of 6.90, remain modestly favorable in the New York State manufacturing sector but order data have been very soft both this quarter and going back to the fourth quarter. New orders are in contraction in the March report, at minus 2.39 which is the second negative reading of the last 6 months, a stretch where this reading has averaged a pitiful plus 2.24. Backlog orders, which are always weak in this report, have been in severe contraction, at minus 13.40 in the March report for a 6-month average of minus 10.75.

Weak orders are not a plus for employment though the March employment index did accelerate substantially, to 18.56 vs 10.11 in February for the best reading since May last year. Yet how long this can hold is in doubt especially given the slowing the last 2 months in the general 6-month outlook. The outlook did rise more than 5 points to 30.72 but the last 2 readings are the weakest since second quarter 2013.

Shipments in March are in the positive column, at 7.93, but are down more than 6 points from February. Shipments were in the high teens and low 20s through much of the second and third quarters last year but, in line with the sagging in orders, have since tailed off to a 6-month average of 7.91. Input costs remain soft as are prices of finished goods which, however, are slightly higher in the latest report.

The Empire State report is the first of the March indicators for the manufacturing sector, to be followed Thursday by the Philly Fed. In general, the manufacturing sector has been misfiring slightly this year, as seen in today's report. Later this morning at 9:15 a.m. ET, the Federal Reserve will post the industrial production report for February.

Market Consensus Before Announcement
The Empire State manufacturing index reported moderate though slowing growth for February 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 were at a solid 14.12, up from January's 9.59 and the strongest reading since September. But growth in new orders was nearly dead flat, down almost 5 points to 1.22 for the second lowest reading of the last 10 months. And confidence has suddenly slipped with the outlook down more than 20 points to 25.58 for the lowest level in two years.

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.