Empire State manufacturing jumps for the first time since recession began
Readings above zero indicate manufacturing activity is growing; below zero, contracting. Economists surveyed by Bloomberg News had expected the Empire State Manufacturing Index to rise to 5.00 in August from -0.55 in July. The index was at -9.41 in June.
In August, sentiment by manufacturers continued to improve, the N.Y. Fed said. In the survey, 30 percent of respondents said that business conditions had improved over the past month, while 18 percent said conditions had deteriorated.
Further, two key components of the index rose. The new orders index rose eight points to 13.4, and the shipments index rose 3 points to 14.1 -- both indexes are at their highest levels in more than a year. The unfilled orders index rose slightly, to minus 9.6. The delivery time index, at minus 10.6, is roughly at July's level. The inventories index rose 14 points from a very low level in July, but remained well below zero at minus 22.3.
Also, respondents' outlook remained upbeat. The futures index rose significantly in August, indicating that businesses expect conditions to continue to improve in the months ahead. The future general business conditions index rose 14 points to 48.2, with 62 percent of respondents expecting conditions to be better in six months. In addition, the future employment indexes were positive and higher in August, which suggests businesses expect employment to rise.
Investors should monitor the Empire State index because it typically provides an early-read on larger manufacturing surveys released later, such as the Institute for Supply Management's manufacturing survey.
Economic Analysis: The August Empire State manufacturing statistic provides more evidence that the U.S. economy is headed for positive growth in the third quarter. At minimum, it further confirms last week's industrial production data showing signs of stabilization in the U.S. manufacturing sector.
Investors should take away from Monday's report that the large decline in inventories has set the table for an end to the pronounced contraction in manufacturing. What's needed now is a critical mass of demand (business investment, increased exports and consumer spending) to get the U.S. economy growing at an adequate rate. Business investment and exports should rebound, so that puts the onus on consumer spending, which at this juncture is a major unknown.