Too Hot to Handle Twist: Econoday “Thankful” for Empire State Manufacturing Cooling

The Econoday consensus estimate for the Empire State manufacturing index was +15.0 in a range of 13.0 to 17.2.

by Mish

The actual index reading was 5.2, down 11.2 points from last month’s reading of 16.4.

In a new twist on the state of the allegedly strengthening economy, Econoday is “thankful” for the cooling.

Highlights
Activity is thankfully cooling in the Empire State manufacturing area, to a general conditions index of 5.2 in April vs unsustainably strong levels of 16.4 and 18.7 in March and February.
Delivery times appear to be grinding to a halt indicating an outright bottleneck in the supply chain, at 16.1 which is a 16-year record high vs the prior month’s 10.4 which was a 13-year high. Growth in new orders eased in the month, down 14 points from March’s 7-year high to a still very respectable 7.0. But unfilled orders continue to mount higher, at 12.4 and just off last month’s 11-year high.
Manufacturers in the region are hiring with the employment index at a 2-year high of 13.9. Price data are confirming the strength with input costs very high and selling prices showing positive traction.
There’s been a burst of factory strength all year in the Northeast with the next Philly Fed report, which was the first regional report to begin lifting off, on Thursday.

Empire State Survey

Business activity grew at a more subdued pace in New York State, according to firms responding to the April 2017 Empire State Manufacturing Survey.

The headline general business conditions index fell eleven points to 5.2. The new orders index, which had climbed to a multiyear high in March, retreated sharply to 7.0, suggesting more modest growth. The shipments index edged up to 13.7, while the unfilled orders index slipped to 12.4. However, delivery times lengthened further, with that index climbing to a record high of 16.1. Labor market indicators pointed to further sturdy increases in both employment and hours worked. Input prices and selling prices rose at a modest pace again this month. Indexes assessing the six-month outlook continued to convey a fairly high degree of optimism.

Business Conditions, New Orders Shipments

Unfilled Orders, Delivery Times, Inventories

Prices Paid, Prices Received

Number of Employees, Workweek

Mish Comments

These regional manufacturing reports have been a hoot.

The most unexpected thing in the report is that Econoday cheered a sharp slowdown in the rate of growth. One more month in the same direction by the same amount and the report will “unexpectedly” be deep in the red.

Lack of price pressures is noticeable. By a 36.5 to 3.6 margin, manufacturers report paying more for goods. By a 16.1 to 3.6 margin, manufacturers report receiving more for their finished goods.

Once again, there is a huge problem with these diffusion indexes. For example, one manufacturer reporting prices were up 10% and another reporting prices were down 1% would balance out. Every category is the same way. Employment up by a headcount of 3 will balance out employment down by a headcount of 100 (or vice versa).

All these reports measure is the direction of various components with no regards for the quantity of any movement. They have not matched actual factory output or retail sales for months on end.

Mike “Mish” Shedlock

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