Empire State Manufacturing Index Dips Slightly, but Still Signals Growth

Notch another encouraging data point for the U.S. economic expansion, as the Empire State Manufacturing Index dipped 2 points to 22.9, the New York Federal Reserve announced Monday. Despite the small decline, the level still indicates that business conditions for New York manufacturers improved for the eighth straight month.

Index levels above zero indicate manufacturing activity is growing; below zero, contracting. Economists surveyed by Bloomberg News had expected the Empire State Manufacturing Index to dip to 22.0 in March. The Index totaled 15.92 in January, 4.50 in December, and was below zero in summer 2009.

Manufacturers' sentiments continued to improve in March, the N.Y. Fed said. In the survey, 43% of respondents said that conditions had improved over the past month, while 20% said conditions had deteriorated.

New Orders Component Surges

Further, two key components of the index rose. The new orders component surged 17 points to 25.4. The inventory component rose above 0 for the first time in more than a year, reaching 4.9 -- the total that indicates inventory levels are now rising in the New York region. Also, the shipments component rose 10 points to 25.6.

In addition, the employment components of the indexes rose, suggesting that employment is continuing to expand. The index for number of employees advanced 7 points to 12.4, its highest level in more than two years, with 20% of respondents indicating that employment levels had risen in March and just 7% indicating that employment had fallen. Meanwhile, the average workweek component rose to 12.4.

In the supplemental section, manufacturing companies were asked about their borrowing needs and credit-related issues. Manufacturers generally reported steady-to-declining borrowing needs during the past year: 28% said their borrowing needs had decreased in the past year, while 19% said they had decreased over the past three months. Regarding credit availability, 24% reported some credit tightening over the past year, but that's still down substantially from the 39% total who reported some credit tightening a year ago.

In general, investors should interpret the March Empire State data as an affirmation of the economic recovery: Factories are increasing output to respond to sustained demand.