US: Empire State Mfg Survey

Fri Sep 15 07:30:00 CDT 2017

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 19.0 10.5 to 20.5 24.4 25.2

Overheating is the signal from Empire State's manufacturing report where strength, which has been enormous, continues to build. September's 24.4 headline easily exceeds Econoday's top estimate but it's the details that are ominously strong.

New orders are up more than 4 points this month to 24.9 to signal the fastest rate of monthly growth in 8 years. Backlog orders are piling up at an unusually strong 8.9 while delivery delays, likely tied at least in part to the supply-chain impact of Hurricanes Harvey and Irma, are at 14.6 which is a record in the 16 year history of this report. Shipments are rising, hiring is accelerating, the sample is increasing inventories, and prices are firmly underscoring the strength, showing very elevated pressure for inputs and strong traction for selling prices.

This report needs to cool to avoid dislocations and extended delivery delays in the region's factory sector. Watch next week for the Philly Fed report which has also been running at unsustainably strong levels. Also watch later this morning for industrial production which is definitive data that have been telling a significantly different story than regional factory surveys.

Market Consensus Before Announcement
The Empire State report will be the first factory indication on what is proving to be a weather-stricken month of September. The index is coming off a 3-year high of 25.2 in August and though the report tracks New York manufacturing, which has been free of hurricanes, forecasters are calling for moderation to 19.0.

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.