|General Business Conditions Index - Level||8.0||4.5 to 11.3||6.5||9.0||7.6|
The headline, at 6.5 in January, is respectable but some of the details in the Empire State report hint at greater strength. Only modestly positive are new orders, at 3.1 and well down from December's 10.4. Shipments, at 7.3, are more positive but also down from December, at 8.6. And employment is still in the negative column at minus 1.7 as is the workweek at minus 4.2.
But positive hints come from inventories which, at a modest looking 2.5, are actually one of the rare builds for this report. This may be indicating that manufacturers in the New York region see greater strength ahead and are getting supplies together. This possibility is supported by the 6-month outlook which held unchanged at 49.7 and still 20 points ahead of the pre-election level.
Prices are another positive, showing significant traction for both inputs, at 36.6 for a roughly 15 point gain, and unusual traction for selling prices, at 17.6 and also up about 15 points.
Empire State is a positive first signal for a factory sector that, due to weak exports and weakness in energy equipment, has been mostly struggling. Watch for the Philly Fed where the January report will be one of Thursday's calendar highlights. Out tomorrow will be industrial production which will offer definitive data on December's factory conditions. Also note that December's levels in today's report have been revised due to year-end adjustments.
Market Consensus Before Announcement
January's advance data start with the Empire State report which, like an even stronger Philly Fed report, has been pointing to building momentum for the manufacturing sector. Strength has been led by new orders and also business expectations. Forecasters see the index posting a third straight month in the plus column, at 8.0.
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.