Key Manufacturing Index Soars in February

The Empire State Manufacturing Index unexpectedly soared nine points to 24.9 in February, its highest level since October, the New York Federal Reserve announced Tuesday.

Readings above zero indicate manufacturing activity is growing; below zero, contracting. A Bloomberg News economists survey had expected the Empire State Manufacturing Index to rise to 18.0 in February from 15.92 in January. The Index was at 4.50 in December, and below zero in the summer 2009.In February, sentiment by manufacturers continued to improve, the New York Fed said. In the survey, 42% of respondents said that conditions had improved over the past month, while 17% said conditions had deteriorated.

Further, four key components of the index remained at levels indicating an ongoing expansion. The general business conditions index climbed nine points, to 24.9. The new orders index fell 12 points, but remained positive at 8.8. The unfilled orders index was unchanged at 2.8. The shipments index fell to 15.1 from 21.1.

Meanwhile, the inventory index rose substantially, to zero -- its highest reading in more than a year.

Firms Expect To Hire

In the supplemental section, manufacturing companies were asked about recent and expected changes in workforce sizes and other employment metrics. Similar questions were asked a year ago in January 2009, and in April 2008. In the current survey, roughly 64% of respondents indicated that they expected their workforce to increase in the year ahead, while just 15% predicted declines. This a substantial improvement over last year's survey result, with those expecting workforce increases outnumbering decreases by a scant 45% to 40%.

Also, outlooks remained upbeat. The future general business conditions index was lower, but remained at a relatively high 52.8, with 60% of respondents expecting conditions to be better in six months. In addition, the future employment indexes were also positive and higher in February, which suggests businesses expect employment to rise in the months ahead.

Investors monitor the 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

A good Empire State Manufacturing report in February -- one that's consistent with a moderately-growing U.S. economy. The key positives in February were the general business conditions index's nine-point rise to 24.9, and the fact that the new orders index, although it fell 12 points, remained positive at 8.8.

The supplemental section also provided pleasant news, with a large increase in the percent of manufacturers that expect their workforce to increase in the year ahead: 64% expect a larger workforce in the year ahead, whereas only 45% expected to add positions last year. That suggests more employers expect demand pressure to continue or increase and that they believe the economic expansion will be sustained, requiring them to increase production -- a bullish sign for U.S. GDP growth and for job growth.
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