The New York Federal Reserve Bank’s Empire State Manufacturing Survey reported contracting levels of activity for four straight months. The composite index edged slightly higher, from -6.2 in October to -5.2 in November, but it remains in negative territory, suggesting a contraction. The percentage of respondents suggesting that business conditions had improved in the past month dropped from 24.6 percent to 19.1 percent, with almost 57 percent of manufacturers saying that conditions were the same. Uncertainties in the marketplace are forcing a lot of business leaders into a wait-and-see posture, it seems.
Despite the increased levels of anxiety about the overall business climate, many of the underlying data points reflect some improvements from the previous month. For instance, the index for new orders rose from -9.0 to 3.1, a pretty sizable gain and a movement from contraction to a slight expansion. Shipments also had progress, up from -6.4 to 14.6. Nonetheless, increased activity has not translated into more hiring. Measures for employment and the average workweek both weakened, with the index for number of employees dropping from -1.1 to -14.6. Over one-quarter of respondents now say that they have fewer employees this month than last, which is not a good sign.
The hesitance to hire could in part be influenced by a weakening of the perceived economic environment over the next six months. The forward-looking general business conditions index fell from 19.4 to 12.9. To be fair, this still indicates modest growth in the coming months, which is reflected in higher new orders, shipments, and capital spending data. Almost 44 percent of manufacturers in the New York region, for example, expect their sales to increase moving into 2013, with one-third anticipating no change. Once again, though, this does not mean more employment. The number of employees over that time frame is expected to slightly shrink, with the index down from zero to -1.1.
In summary, the Empire State survey is a mixed bag. New orders and shipments have improved in November, with some measures of activity expected to continue to grow moving into 2013. Yet, it is also clear that there are a lot of anxieties out there. Manufacturers’ perceptions of business conditions remain negative, dragging expectations for future growth lower. Moreover and perhaps reflecting the uncertain market right now, these businesses are not ready to increase their hiring. This suggests that manufacturers are not yet convinced that the economy is on a firm footing.
Chad Moutray is chief economist, National Association of Manufacturers.