Joan McCullough (formerly of Bear Stearns, now at East Shore Partners) has a few bon mots on the Empire State manaufacturing survey:
"Every month, the New York Fed sends out a survey asking respondents to assess general business conditions as well as company business conditions. For general business activity, respondents are asked, "What is your evaluation of the level of general business activity?"
Answers are given based in the current month versus the previous month, and the outlook for six months from the current month. An indicator is presented for a decrease, no change, an increase, and a diffusion index. For each indicator, the diffusion index is calculated by subtracting the percent of respondents reporting the indictor lower for from the previous month from those reporting the indicator higher.
The data are seasonally adjusted. The NY index tends to overstate swings in the ISM.
Expectations were for 11. vs. the prior 3.12.
Actual: UH-OH. Dropped unexpectedly to MINUS -11.1. Lowest level since June of ’03.
There was a better than 10% increase in the number of survey participants who said that business conditions had deteriorated.
Prices Paid (by manufacturers): flat
Prices Received (paid to manufacturers): Dropped by almost 6 pts to the lowest read
since early ’04.
Now look at this: Future Prices Received dropped a whopping >17 points to 6.0. This
takes us back to November of ’03. Yikes. This means they don’t think that they will be
successful in pushing prices thru.
Employment: Dropped from 8.5 to just above zero.
Bottomline: From head to toe, this stinks. But note, this is sentiment only. Maybe they had a bad hair day. Dismissed.
The good news is this is a volatile series which has only modest impact elsewhere. Teh bad news is its an early read into ISM.