An Empire State of...Optimism?
One of the most useful tools to understanding the current (and future) state of the national economy is to take a good hard look at the monthly reports from each Fed District - and there are 12 in all: Boston, Philadelphia, Richmond, Atlanta, Cleveland, Chicago, Kansas City, St. Louis, Minneapolis, Dallas, San Francisco and New York. Much can be derived about the health of the economy when each district's manufacturing data is taken into consideration. Today, I thought we would take a closer look at the New York Fed's monthly report - or the Empire State Manufacturing Index. But you'll see, the results are a tad gloomy.
What is the Empire State Manufacturing Index?
New York Empire State Manufacturing Index is based on data compiled from the survey of 200 executives (mostly CEOs) from the companies in the manufacturing sector in the New York State. Participants report the change in 11 indicators including level of general business activity, new orders, shipments, inventories, number of employees, delivery time, capital expenditure from the previous month and the likely direction of these indicators in six months. A reading above 0 indicates manufacturing activity is expanding, below 0 is contracting, and a reading at 0 indicates no change in activity over the previous month.
While New York State is not expressly known for its manufacturing sector, the volume of trade coming in and out of the area is what is of importance to investors. Manufacturing plays a much more prominent role in the Fed Districts of Philadelphia, Richmond, Kansas City, Chicago and Dallas. However, the New York Fed is the largest and most prominent district, so it is always good to know what economic activity is taking place here.
Details for August 2016
Overall, the New York regions's manufacturing sector came in relatively flat for the month of August, with an overall reading of -4.21, compared to a positive 0.55 reading in July. New orders, which measure the most robust part of the manufacturing side, were especially flat at 1.04 in August compared to a -1.82 in July. Unfilled orders are still continuing to be negative, as they have been for months now, at a reading of -9.28. There was some notable strength in the shipments segment at 9.01 but this should not last long given how weak the order data has been.
Employment levels are also flat at -1.03 and pricing power is steady with input prices moderate and selling prices slightly higher. One major negative in the report is a 5.5-point decline in the 6-month outlook for the region at a reading of 23.74, which is at the least optimistic level since February 2016. Weaker global demand, and the upcoming election, are not helpful at all in giving August numbers a boost in the New York Fed District. It's important to be vigilant of long-term trends in the future in order to be aware of any massive changes in the the economy or stock market.