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Empire State Index Declines

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Empire State Index Declines

Aug 18 2015, 06.23am GMT

STOCK.com

The Empire State Index, which is based on a monthly survey of manufacturers in New York State, fell dramatically in the August 15 report released by the Federal Reserve who conducts the survey.

The index, which came in at a reading of +3.9 in the last survey report in July, crashed down to a reading of -14.9 which is the lowest level the index has recorded since 2009. Any positive reading of this index indicates that business conditions are improving while the actual reading was a shocker when compared to a MarketWatch compiled economist poll that had forecast a +4.5 reading for the August survey.

The survey results, which then comprise the index, are derived from the answers to a questionnaire sent to around two hundred of the senior manufacturing sector executives, usually the president or CEO. The questions are designed to obtain their opinions on business indicators for the previous month as well as the likely direction of the same indicators looking six months into the future.

There are a total of eleven indicators and these include new orders, shipments, unfilled orders, delivery time, inventories, prices paid, prices received, number of employees (including contract workers), average employee workweek, technology spend and capital spend. The index is seasonally adjusted when seasonal changes are observed.

The questionnaire does not deal with specific numbers in most of the questions, but rather asks for answers such as increase, no change or decrease. The questionnaire is distributed at the beginning of each month and must be returned by the 10th of that month. Statistics show that around 50% of the recipients actually respond and return the completed questionnaire.

Manufacturing employment in New York State has undergone a long term retraction with historical figures showing that in 1960, about 30% of the workforce was engaged in manufacturing while by 2005, the figure had fallen to 10% which is well below the national average of 14%.

Still, this index number is very significant as a pointer to national manufacturing numbers as it is the first of a series of regional manufacturing reports.

Amongst the numbers that are somewhat disturbing are those for new orders which dropped from -3.5 to -15.7 as well as the shipments index which declined to -13.8 from +7.9 in the previous month. Strangely enough, in view of the current negative sentiment, the index for future business activity increased to +33.6, an increase of seven points over the month before.

Commenting on the importance of this report, Josh Shapiro, chief U.S. economist at MFR Inc. said, “Along with this report's history of volatility, the dichotomy between the fairly solid expectations portion of the survey and the horrendous current conditions portion lead us to be wary of taking the current conditions data at face value, and we would be very surprised to see other manufacturing indicators post similarly weak results in the weeks ahead.”

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