The Empire State Manufacturing Survey, released November 15 by the Federal Reserve Bank of New York, indicates that conditions deteriorated in November for New York State manufacturers. For the first time since mid-2009, the general business conditions index fell below zero, declining 27 points to -11.1. The new orders index plummeted 37 points to -24.4, and the shipments index also fell below zero. The indexes for both prices paid and prices received declined, with the latter falling into negative territory. The index for number of employees remained above zero but was well below its October level, and the average workweek index dropped to -13.0. Future indexes generally climbed, suggesting that conditions were expected to improve in the months ahead, although the capital spending and technology spending indexes inched lower.
In a series of supplementary questions, respondents were asked about cash holdings and debt financing. A majority of respondents reported that they expected their outstanding debt levels to remain unchanged over the next year; of those firms that expected a change in debt levels, the number anticipating a decline somewhat exceeded the number expecting an increase. In response to a question about current cash holdings, 35 percent of firms said that they were currently holding higher than usual (excess) cash balances, while just 22 percent indicated that their cash balances were lower than usual. Moreover, looking ahead to the next twelve months, a sizable 42 percent of respondents expected their cash holdings to increase, whereas fewer than half that number expected cash balances to decline. Finally, when asked how they planned to finance capital spending over the next year, respondents indicated that they would use cash to finance nearly 60 percent of expenditures.
Business Activity Declines
The general business conditions index fell below zero for the first time since July of 2009, dropping a steep 27 points to -11.1 — an indication that, on balance, conditions had worsened over the month. The percentage of respondents reporting that conditions had improved fell from 35 percent in October to just 17 percent in November, while the percentage reporting that conditions had worsened rose from 20 percent to 28 percent. The new orders index plummeted 37 points to -24.4, its sharpest drop since September 2001. Nearly 40 percent of respondents reported that orders were down. The shipments index fell 26 points to -6.1, and the unfilled orders index declined 23 points to -24.7. The delivery time index, at -9.1, was little changed. The inventories index rose to zero after dropping into negative territory last month.
Price Indexes Fall
Indexes for both prices paid and prices received were below their October levels. The prices paid index fell 8 points to 22.1, suggesting that the pace of price increases had slowed in November. The prices received index dropped below zero, falling 11 points to -2.6 — a sign of slight downward pressure on selling prices. Employment indexes were also lower. The index for number of employees fell 13 points but, at 9.1, remained above zero, indicating that employment levels were modestly higher in November. The average workweek index, however, fell below zero, to -13.0, indicating that the average length of the employee workweek was shorter.
Conditions Expected to Get Better
While current indexes pointed to a decline in business activity in November, future indexes suggested that manufacturers expected conditions to be better in six months. The future general business conditions index climbed to 54.6, with 60 percent of respondents expecting conditions to improve over the next six months, while just 5 percent expected conditions to worsen. The future new orders index rose to 53.3, and the future shipments index rose to 45.5. The future prices paid index held steady at 40.3, while the future prices received index climbed to 35.1, its highest level in two years, suggesting that respondents expected selling prices to rise. Future employment indexes were positive, indicating that employment levels were expected to be higher. The capital spending index was slightly lower, at 23.4, and the technology spending index inched down to 10.4.
