Empire Manufacturing Resumes Downward Slide, Misses Consensus, Future Conditions Index At Lowest Since February 2009

The first August leading indicator starts off with a thud, after the Empire State manufacturing index just confirmed that the recent brief push higher was, well, transitory. Printing at -7.72, on expectations of 0.00, down from -3.76, the first diffusion index of the month just saw a third consecutive contractionary print in a row, setting the stage for much more ugliness in August. The summary was succint: "Business conditions continue to deteriorate: "The general business conditions index fell four points to -7.7. The new orders index also fell, inching down to -7.8; the negative reading—the third in a row—indicated that orders had declined. The shipments index held steady at 3.0, a sign that shipments were slightly higher over the month. The unfilled orders index continued to drift down, falling three points to -15.2. The delivery time index was little changed at 0.0. The inventories index dropped two points to -7.6, suggesting that inventory levels were down slightly." What is surprising is not that the current outlook is deteriorating, but that for the first time, the future index finally cracked as the hopium has finally ran out: "The future general business conditions index fell twenty-four points to 8.7, its lowest level since February 2009. The future new orders and shipments indexes dropped to their lowest levels since September 2001." I.e., hope is no more. And there is nothing to take its place.

Looking at individual indices, the New Orders index dropped to November 2010, Unfilled Orders dropped to December 2010, Inventories dropped to December 2010 levels, Prices Paid down to November 2010 levels, as as Priced Received. Amusingly the Number of Employees increased modestly from 1.11 to 3.26, coupled with an increase in the Average Employee Workweek: and there's your spin.

And in a special supplementary report, the NY Fed indicated that manufacturer still face difficult finding workers with select skills:

In a series of supplementary questions to the August 2011 Empire State Manufacturing Survey, fi rms were asked how much diffi culty, if any, they were experiencing in fi nding workers profi cient in select skill categories; they were also asked to estimate the costs of the training needed to bring new hires up to speed. The table below shows the results of the survey alongside the results from a parallel survey conducted in March 2007.


Despite the current slack job market, manufacturers’ responses in this month’s survey were not substantially different from those recorded in March 2007, when New York State’s unemployment rate was below 4½ percent. As in the earlier survey, workers with advanced computer skills were seen as the hardest to find: On a scale of 0 to 100, this task received a difficulty rating of slightly more than 61 in this month’s survey—almost identical to the rating it received in 2007. (See the table for a detailed explanation of the diffi culty measure.) Finding workers who are punctual and reliable received the second highest difficulty rating, followed by the task of finding workers with good interpersonal skills; these results, too, mirrored those from the earlier survey.

Respondents were also asked to estimate training and related costs for new hires as a percentage of overall compensation. On average, manufacturers indicated that such costs accounted for 6.5 percent of total compensation in the past year, compared with 5.6 percent in a typical year—percentages that closely tracked those cited in the 2007 survey. The median proportion was reported to be 5.0 percent, for both the past year and a typical year.


Finally, in a question not posed previously, manufacturers were asked how much they expected a typical worker’s wage or salary to increase (or decrease) over the next twelve months—not including benefi ts and not including any promotion or change in hours worked. The vast majority of respondents, 79 percent, predicted at least some increase in pay, while 21 percent expected wages to remain unchanged; no respondents anticipated a decline. The average expected pay increase was reported to be 2.4 percent, while the median was 2.8 percent.

Bottom line: it is impossible to find a punctual worker who knows what they are doing in the New York area.

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