NY Fed Falls

From the NY Federal Reserve:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to deteriorate in June, at a moderately faster pace than in May. The general business conditions index fell 5 points, to -9.4. The new orders index remained negative and near last month’s level, while the shipments index fell 6 points to -4.8. The inventories index declined and remained well below zero. Price indexes were negative but modestly higher than in May, and employment indexes stayed below zero. Future indexes were generally positive and continued to rise, conveying an expectation that conditions should improve over the next six months. Both the capital spending and technology spending indexes rose into positive territory for the first time since October of last year.

Here is the accompanying chart:

The general business conditions index fell several points from last month’s level, dropping to -9.4, but remained well above the string of deeply negative readings observed in the October-March period. This month, 28 percent of respondents reported that conditions had improved, compared with 23 percent last month, while 38 percent of respondents reported that conditions had worsened, up from 28 percent. After rising above zero last month, the shipments index retreated to -4.8. The unfilled orders index, at -10.3, was little changed. The delivery time index rose a few points to -10.3, and the inventories index fell to -25.3.

This looks like a natural pullback in activity from the previous month. While the conditions are still negative, they have rebounded from their lows earlier in the year.

However,

Future indexes continued to rise, conveying an expectation that conditions should get better over the next six months. The future general business conditions index advanced 4 points, to 47.8, its highest level in nearly two years; 61 percent of respondents expected conditions to improve over the next six months. The future new orders index, at 45.8, suggested similar optimism, as did the future shipments index at 48.7. Input prices were expected to rise, while selling prices were expected to fall; the future prices paid index was positive, at 10.3, and the future prices received index was negative, at -5.8. The index for future number of employees surged from 0.7 last month to 16.1—a fourth consecutive monthly increase from February’s record-low -29.3. The capital expenditures index rose into positive territory for the first time since October, climbing 13 points to 11.5, and the technology spending index also rose above zero, to 1.2.

I don't know how much of this is wishful thinking and how much is based on some fact. However, it is encouraging.

Empire State Borrowing Report

The recent NY Federal Reserve Manufacturing report had a series of questions related to borrowing -- specifically whether the need to borrow had increased or decreased, what the needs for new credit were for and what the perception of the credit markets was. Let's look at the responses (click for a larger image):


Notice the following:

Question 2: Notice the increase from "same" to "tighter" from the last survey. However, also note the number of firms who responded "same" in the latest survey was 57% for the last 12 months and 60% for the last three months. That's a clear majority of firms.

Question 3: The number of firms who said banks' credit requirements were "much tighter now" increased to 25.5% of respondents. But again a majority 53% said the requirements were the same.

Question 4: The number of respondents who said the cost of borrowing increased rose, but so did the number of respondents who said the cost decreased.

Question 5: 69.9% of all respondents said the limits on the lines of creased were the same.

My guess is the firms that need money are the ones who are answering that credit is tightening and harder to get while the firms who have some type of cushion are responding things are OK. Again -- that's a guess.

Manufacturing Tanking Hard

We've had all the monthly manufacturing data released. The news is terrible.

Let's start with the ISM manufacturing survey. Here is the relevant graph:



Click for a larger image

Notice the index as dropped off a cliff over the last two months. Consider the following from the report:

PERFORMANCE BY INDUSTRY

The two industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; and Paper Products. The industries reporting contraction in November are: Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Wood Products.

WHAT RESPONDENTS ARE SAYING ...

* "The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)
* "Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)
* "Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)
* "We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)
* "Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)

And consider the historic nature of the problem:

The contraction underway in the manufacturing sector is of historic proportions, the results of November's ISM manufacturing report that shows a headline index of 36.2, down nearly 3 points in the month. The reading is the lowest since 1980 recession. Key components in the survey show greater weakness than the headline index including a 31.5 level for the production index that matches the record low in May 1980. New orders at 27.9 is at its lowest since the early 80s while, in perhaps the most stunning reading of all, prices paid is at 25.5, down 11.5 points in the month for the lowest reading since early data in 1949 -- a critical indication that demand is falling and falling very sharply.

Notice that only two industries expanded whereas 16 contracted. Sales reports are being downgraded and the criteria for projects is increasing. Simply put -- things are bad. Also note we are at lows not seen since the 1980s. That is not a comparison anyone wants to make.

Overall industrial production is also down. From the Federal Reserve:

Industrial production decreased 0.6 percent in November with declines widespread across industries. The drop in output in September was revised down, and the rebound in October was revised up, in large part because both the decrease due to the September hurricanes and the subsequent partial recovery in October were larger than previously reported.

Manufacturing production dropped 1.4 percent in November despite the resumption of activity in the commercial aircraft industry after the resolution of a strike early in the month. The output of mines advanced 2.5 percent, primarily as a result of a further post-hurricane recovery in crude oil and natural gas operations in the Gulf of Mexico. Taken together, the rebounds after the strike and the hurricanes added almost 1 percentage point to the change in industrial production. The output of utilities rose 1.6 percent.

At 106.1 percent of its 2002 average, total industrial production in November was 5.5 percent below its level of a year earlier. The capacity utilization rate for total industry fell to 75.4 percent, a level 5.6 percentage points below its average level from 1972 to 2007.

Here are the relevant graphs:





Click for larger images

The year over year number is a big concern. Also note that capacity utilization is leveling at a lower level than the level we've had for the last few years. The bottom line is we're slowing down.

The New York area's manufacturing index is also in very bad shape:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated significantly in December. The general business conditions index, at -25.8, held near the record low set in November. The new orders and shipments indexes also remained near their recent record lows, and the unfilled orders index dropped to a new low. The indexes for prices paid and prices received fell below zero, and employment indexes remained deep in negative territory. Future indexes remained subdued, with the capital spending and technology spending indexes remaining well below zero.

The graph shows the severity of the slowdown:



Click for a larger image

Again -- this is a significant decline which happened quickly. In indicates the slowdown is extreme, sharp and very sudden.

Finally there is the Philadelphia survey:

Conditions in the region's manufacturing sector continued to deteriorate this month, according to firms polled for the December Business Outlook Survey. All of the survey's broad indicators remained negative this month and at relatively low levels. Firms reported declines in input prices and the prices for their own manufactured goods this month. Consistent with the weakness in current activity, most of the survey's indicators of future activity slid further into negative territory, suggesting that the region's manufacturing executives expect continued declines over the next six months.

Here is the relevant graph:



There is no good news in any of these releases. Simply put, manufacturing is in terrible shape.

An Overview of Recent Manufacturing Reports

Every month, several Federal Reserve Banks issue regional manufacturing reports. Rather than look at them one at a time, I like to look at them as a group to get a better overview of what is happening.

The Empire State survey wasn't good:

The Empire State Manufacturing Survey suggests a marked deceleration in manufacturing activity in December. The general business conditions index plummeted 17 points, to 10.3. The new orders and shipments indexes, while positive, also posted notable declines, and the unfilled orders index fell well below zero. The prices paid index eased slightly, and the prices received index held steady. The index for number of employees was modestly positive, while the average workweek index fell into negative territory for the first time since January. Future indexes were positive, but the degree to which activity is expected to expand over the next six months remained low compared with expectations earlier this year.

The Philadelphia Survey wasn't much better:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell notably, from 8.2 in November to -5.7 in December (see Chart). Fifty percent of the firms reported no change in activity from November, but the percentage of firms reporting decreases (27 percent) was greater than the percentage reporting increases (21 percent) for the first time since last December. However, other broad indicators suggest continued growth this month. Demand for manufactured goods, as represented by the survey’s new orders index, remained positive and increased seven points; the current shipments index increased 14 points. However, indexes for both unfilled orders and delivery times were negative.

And the Richmond Fed showed a slowing as well

Manufacturing activity in the central Atlantic region drifted lower in December, after stabilizing somewhat in November, according to the Richmond Fed’s latest survey. The index of overall activity was pushed into negative territory by weak readings for shipments and new orders. Other indicators were mixed. District contacts reported that the pace of hiring picked up, order backlogs changed little and delivery times edged slightly lower from a month ago. In addition, capacity utilization contracted at a quicker rate and manufacturers reported that growth in inventories expanded at a slightly faster pace.

And the Chicago National Index was low as well:

November economic growth below average
The Chicago Fed National Activity Index was −0.27 in November, up from −0.89 in October. Three of the four broad categories of indicators—employment, consumption and housing, and sales, orders, and inventories—made negative contributions to the index in November, while the production and income category made a slight positive contribution. (PDF,110KB)

The benefit of looking at all of these together is you can see if one report is out of place. However, an overview indicates there is a problem across regions. That's not a good sign going into the new year.

Empire State Index Drops Big

Here is a link to the PDF report

The general business conditions index dropped from 24.3 to 1.8. That's the biggest drop we have seen in a year. The index increased last month, but that was obviously a one-time pop. I'm thinking it may have been simple enthusiasm for the new year.

New orders decreased from 19 to 3. This is another very large drop -- one that has not happened in the last year.

Prices paid increased slightly from 27 to 30.

This is a bad report, plain and simple. It shows a sharp decline in the present business conditions.

NY State Manufacturing Index Rebounds

Here's a link to the full report:

Short version: The overall situation jumped up. New Orders, shipments and unfilled orders all increased. Prices paid decreased while prices received increased.

The last ISM index has hovering around recessionary levels. Since that time, we've had a moderately positive Philly Fed report and a very strong NY report. That should help to ease some concern about the manufacturing sector of the economy for now.

As with all things economic, we'll have to wait and see if the trend continues. We're not out of the woods yet, but we're making a start.

NY Manufacturing Index Drops Sharply

From CBS MarketWatch

Manufacturing activity in the New York area declined sharply in January, the New York Federal Reserve Bank said Tuesday. The bank's Empire State Manufacturing index fell to 9.1 in January from a revised 22.2 in December. This is the lowest level since the summer of 2005. The drop was much greater than expected. Economists were expecting the index to slip to 20.0 from the initial estimate of 23.1 in December. The indexes for new orders, shipments and employment also fell sharply. The inventories index dropped to its lowest level in well over a year.

From the survey; trend of a particular indicator:

New Orders: Down

General Business Conditions: Down

Shipments: Down

Prices Paid: Up

Number of Employees: Down

Average Workweek: Down

Expectations in six months and the trend of a particular indicator:

General Business Conditions: Down

New Orders: Down

Shipments: Down

Short version? This report stinks.