Empire State Manufacturing Survey
The monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York.

May 2007 Report

General Business Conditions

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved slightly in May. The general business conditions index inched up 4 points, to 8.0

The new orders and shipments indexes also improved, and the unfilled orders index rose to zero. The prices paid index retreated from last month’s level but remained elevated, while the prices received index rose after three consecutive months of decline. Employment indexes advanced moderately.

The future general business conditions index leapt up 16 points, reaching a level not seen in well over a year. The future prices paid and prices received indexes also posted significant gains.

In a series of supplementary questions, identical to questions posed in the June 2006 survey, manufacturers were asked how much they expected the prices they paid to change over the next six months; in addition, they were asked to assess the probability that prices would rise or fall by certain specified amounts. Responses to the current survey indicated that the median expected change over the next six months was a 3.0 percent increase—down from a 4.0 percent rise in last year’s survey.

On average, manufacturers saw a 44 percent chance that prices would rise by between 2 and 8 percent, and a 38 percent chance that prices would remain within 2 percent of their current levels. Price increases of 8 percent or more were given an average probability of 13 percent. These figures suggest that the perceived risk of upside price pressures has abated somewhat from last year’s survey.

General Business Conditions Improve Marginally
The general business conditions index edged up 4 points in May, to 8.0, but remained close to the low levels of March and April. Twenty-six percent of respondents—roughly the same percentage as in April—reported that conditions had improved over the month, while the percentage reporting worsening conditions dropped from 25 percent to 18 percent. The new orders index also rose, to 8.0, and the shipments index advanced 5 points to 14.1. The unfilled orders index climbed to zero, and the delivery time index dropped below zero. The inventories index reversed a three-month rising trend that had peaked last month at 7.1, dropping to zero.

Higher Prices Continue
Although the two price indexes moved in opposite directions in May, both remained elevated. The prices paid index dropped 6 points, to 34.4, indicating some easing of price pressures; thirty-six percent of respondents reported an increase in prices orgpaid, down from 44 percent in April. The prices received index reversed course after three consecutive declines, rising 8 points to 15.6. Employment indexes improved. The index for number of employees increased to 9.7, and the average workweek index rose to 11.1.

Expectations Climb
The future general business conditions index shot up from 33.9 in April to 49.8 in May. Fifty-nine percent of respondents expected conditions to improve over the next six months, compared with 43 percent last month. The future new orders index rose nearly 10 points, to 44.8, and the future shipments index climbed from 38.0 to 50.6. Respondents predicted that price increases would intensify in the months ahead. The future prices paid index rose 10 points, to 53.3, and the future prices received index rose 19 points, to 36.7. Future employment indexes remained positive. The capital expenditures index increased to 34.4, and the technology spending index advanced to 26.7.

Manufacturers Expect to Pay Higher Prices by Year-End
In a series of supplementary questions in the May survey, manufacturers were asked to predict how much the prices they paid would change over the next six months. The same questions had been asked in June 2006.

In the current survey, the median expected price change over the next six months was a 3 percent increase—down from a 4 percent increase in last June’s survey. Asked about the probability that prices would rise or fall by certain specified amounts, respondents on average estimated a 44 percent probability that prices would rise by between 2 and 8 percent, compared with a 51 percent probability in the 2006 survey.

On average, manufacturers indicated a 13 percent chance that prices would rise by 8 percent or more, down from an 18 percent probability in last year’s survey. Relatively stable prices—defined as staying within 2 percent of current levels—were viewed as more probable in the current survey (38 percent chance) than in last year’s survey (27 percent chance). Price declines were seen as fairly improbable in both surveys.

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