The Empire State Manufacturing Survey Plunged…Should We Worry? by Eric Bush, CFA, Gavekal Capital
The New York Fed reported today that the Empire State Manufacturing Index fell to the lowest level since April 2009. This surprised economic forecasters as the consensus was actually looking for a slight improvement. While one data point out of a regional Fed survey shouldn’t get anyone too excited as these are notoriously volatile series, we thought it would be worth taking a quick tour of the other regional surveys to get a lay of the US manufacturing landscape (we checked in on global manufacturing PMIs last week).
Manufacturing output has grown relatively steady over the past five years. In the chart below we plot the 3-month annualized change in manufacturing output compared to the Empires State Manufacturing headline series. While the fall in the Empire State Manufacturing Index is a bit worrisome, a quick snap back in the series is not out of the question. If that were too happen, we would not expect manufacturing output to fall.
The Empire State Manufacturing survey is the first survey showing August data. And while the headline ISM Manufacturing series is still showing a growing manufacturing sector for July (52.7), there has been a noticeable decline in the various regional and national PMI series over the last six months. In the two tables below, we format each row from high (green) to low (red). As you can see, only the Michigan PMI index seems to have bucked the slowing trend of 2015.
Of course, we must keep in mind that the ISM non-manufacturing index recently broke out to nearly a ten year high in July. And since the service sector dominates the US economy, our GDP-weighted composite PMI series has also significantly moved higher.
Overall, we aren’t too concerned about the plunge in the Empire State Manufacturing Index. However, we will be keeping a close eye on how the rest of the August data plays out. If the regional surveys uniformly fall in August and we see a snap-back, weak data point from the ISM Non-Manufacturing Survey for August as well that will be a cause for concern.