Empire State Manufacturing Survey: Activity Fell Sharply in May

This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at Advisor Perspectives/VettaFi.

This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions fell 42.6 points from last month to -31.8, its biggest monthly decrease in 3 years. This morning's reading was well below the Investing.com forecast of -3.7 and puts the index back into contraction territory for the fifth time in six months.

The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, and below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. This month's responses were collected between May 2-9th.

Here is the opening paragraph from the report.

Business activity fell sharply in New York State, according to firms responding to the May 2023 Empire State Manufacturing Survey. The headline general business conditions index dropped forty-three points to -31.8. New orders and shipments plunged after rising significantly last month. Delivery times shortened somewhat, and inventories contracted. Both employment and hours worked edged lower for a fourth consecutive month. Prices increased at about the same pace as last month. Capital spending plans turned sluggish. Looking ahead, businesses continued to expect little improvement in conditions over the next six months.[Full report]

Below is a chart of the current conditions and its 3-month moving average, which helps clarify the trend for this extremely volatile indicator. The current 3-month moving average is -15.2, down 8.7 points from last month.

Empire State Manufacturing

Since this survey only goes back to July of 2001, we only have two complete business cycles with which to evaluate its usefulness as an indicator for the broader economy. Following the great recession, the index has slipped into contraction multiple times, as the general trend slowed. We saw a gradual decline in 2015 that rose back up in 2016, with a giant dip in 2020 due to COVID-19. The index quickly picked up again in 2021 but has been declining since the start of 2022.