The Empire State Manufacturing Survey, released December 15 by the Federal Reserve Bank of New York, indicates that conditions improved in December for New York State manufacturers. After dropping sharply into negative territory in November, the general business conditions index bounced back above zero, climbing 22 points to 10.6. The new orders and shipments indexes also rose above zero, while the unfilled orders index remained negative. The inventories index was negative, indicating that inventory levels were lower over the month. The indexes for both prices paid and prices received were positive and higher than last month, suggesting that prices rose, while employment indexes were negative, indicating that employment declined. Future indexes were generally at high levels — a sign that conditions were expected to improve over the next six months. Significantly, the future prices paid index was positive and rose sharply, indicating that respondents expected input prices to accelerate.
In a series of supplementary questions, respondents were asked about recent and expected changes in the prices paid by firms for several major budget categories, including wages, employee benefits, insurance, energy, and other commodities. The same questions had been asked in December 2009 and in earlier years. Respondents reported that in 2010, prices paid overall rose 4.3 percent on average, and they predicted that this rate would accelerate slightly to 4.5 percent in 2011. The steepest increase foreseen was in employee benefits, where prices were expected to climb 10.1 percent, up from the 8.9 percent increase observed in 2010. The average respondent reported a 64 percent chance that prices would rise at least 2 percent over the next six months but only a 12 percent chance that they would increase at least 8 percent.
Business Activity Recovers
After dropping a steep 27 points and turning negative in November, the general business conditions index recovered in December, rising 22 points to 10.6. The percentage of respondents reporting that conditions had improved advanced from 17 percent to 30 percent, and the percentage reporting that conditions had worsened declined from 28 percent to 19 percent. The new orders index also climbed above zero, rising 27 points to 2.6, and the shipments index moved up 13 points, to 7.1. The unfilled orders index improved but, at -18.2, remained negative. The delivery time index was little changed at -6.8. The inventories index fell 16 points to -15.9, suggesting a significant drop in inventory levels.
Rising Prices, Falling Employment
Indexes for both prices paid and prices received were positive and higher than last month The prices paid index rose 6 points to 28.4 — a sign that input prices were accelerating; the prices received index also rose 6 points, to 3.4. The employment indexes, both negative, indicated a drop-off in employment activity in December. The index for number of employees fell 13 points to -3.4, for a cumulative decline of 25 points over the past two months. The average workweek index edged further into negative territory, reaching -14.8.
Future Indexes Remain Positive
Future indexes pointed to ongoing optimism about the six-month outlook. The future general business conditions index was several points lower than last month but, at 48.9, was still close to the relatively high readings seen earlier in the year. The future new orders and shipments indexes were also relatively high, with the latter continuing a four-month streak of rising values. The future prices paid index posted a notable increase, rising 18 points to 58.0, its highest level since 2008; the upswing suggests that manufacturers expect input price increases to accelerate in the months ahead. The future prices received index also climbed. Future employment indexes were positive and little changed. The capital expenditures index held steady at 22.7, while the technology spending index rose 9 points to 19.3.
