US: Empire State Mfg Survey

Mon Oct 16 07:30:00 CDT 2017

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 20.0 18.0 to 24.1 30.2 24.4

Empire State's sample continues to report exceptionally strong activity, at 30.2 for general conditions in October which was last matched in September 2014 and last exceeded in October 2009. Shipments are the standout in today's report, at 27.5 for the highest reading since again in October 2009. Employment also shows unusual strength, up 15.6 for a sharp 5 point gain on the month to indicate the strongest rate of hiring since March 2015.

Order readings show less strength with new orders down nearly 7 points from September but at 18.0 still no less than robust. Unfilled orders, depleted by shipments, still rose but only slightly at 2.3. Delivery times, which had slowed abruptly during September's hurricane disruptions to the supply chain, are improving significantly this month while input prices, though still rising at a very hot 27.3 are down 8.5 points. The sample also continues to report traction for selling prices, at a constructive index of 7.0 though down from September's 13.8.

Today's results point to similar strength for Thursday's Philly Fed report which, like this one, has been posting unusually strong results all year. It's important to remember that diffusion indexes offer only rough assessments of activity and in Empire State and Philly Fed are based on relatively small samples where responses are always voluntary. And the rare strength of these samples has yet to be matched by the government's factory data out of Washington which have been mostly solid with, however, noticeable areas of weakness. Watch on tomorrow's calendar for the industrial production report where the manufacturing component has managed only 1 gain in the last four reports with 2 sharp declines.

Market Consensus Before Announcement
Overheating is the signal from Empire State's respondents who have been reporting sharply accelerating activity from already highly elevated levels. New orders are at 8-year highs while delivery delays are at record levels and consistent, aside from possible hurricane-related delivery delays that may be hitting the Northeast, with unsustainable activity that is clogging the supply chain. The index has far surpassed expectations at 24.4 and 25.2 the last 2 reports with forecasters seeing the October index coming in at 20.0.

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.