Empire stalls

The Empire Manufacturing Index is a regional survey that looks at manufacturing in New York State and is compiled by the New York Federal Reserve.

In hindsight, the survey did a great job signaling the low point in manufacturing and the recovery that eventually ensued.

Because it is the first look at manufacturing during the current month, the narrow survey does garner some extra attention, but it tends to be volatile and sudden shifts have to be taken in context with the overall trend.

That said, the Empire Manufacturing Index fell from 23.5 in November to 2.6 in December, well below the  forecast offered by Bloomberg of 25 and a sign that output slowed markedly.  A reading of zero marks the line between contraction and expansion.

New orders and shipments decreased, but prices paid rose from 10.5 to 19.4, signaling rising pricing pressures at the early stages of production, which is likely tied to rising commodity prices.

But prices received fell from –2.6 to –9.2, as manufacturers have little recourse when it comes to passing along increased costs.

The steep drop in the index is disappointing, but as already mentioned, one month does not constitute a trend.  We’ll have to see what happens when the Philly Fed’s Business Activity Index is released later this week. And we’ll have to look at the ISM Manufacturing Index, which is a highly-sought-out survey that encompasses the entire country.

If a pause is detected, it is likely that we’re just looking at a one-month bump, in my view.