What Is the Empire State Manufacturing Index?
Explore the Empire State Manufacturing Index, a vital economic indicator revealing the pulse of New York's manufacturing sector.
The Empire State Manufacturing Index is a monthly indicator that provides timely insights into the economic conditions of New York State’s manufacturing sector. It gauges overall business sentiment and activity among manufacturers, serving as an important measure for understanding industrial production and its potential future direction.
What the Index Measures
The Empire State Manufacturing Index is derived from a monthly survey conducted by the Federal Reserve Bank of New York. This survey is sent to approximately 200 manufacturing executives across New York State, typically targeting company presidents or CEOs. It gathers their perspectives on business operations and general conditions.
The survey covers specific business conditions within the manufacturing sector, including:
New orders received
Volume of shipments
Levels of unfilled orders
Inventory changes
Employment figures
Average workweek hours
Delivery times for materials
Prices paid by manufacturers for inputs
Prices received for finished goods
This comprehensive set of sub-indices provides a detailed snapshot of the state’s manufacturing landscape, offering insights into current and expected trends.
How the Index is Calculated
The Empire State Manufacturing Index is structured as a “diffusion index,” a common method for measuring changes in economic activity. Participants report whether business conditions increased, decreased, or remained unchanged from the previous month. This approach focuses on the breadth of change rather than absolute activity levels.
The index value is determined by subtracting the percentage of respondents reporting a decrease from those reporting an increase. For instance, if 30% of firms report an increase and 20% report a decrease, the index for that component would be 10. A positive result indicates expansion, a negative result suggests contraction, and zero implies no net change. Final index values are seasonally adjusted to account for typical fluctuations throughout the year.
Interpreting the Results
Interpreting the Empire State Manufacturing Index requires understanding its numerical values. A reading above zero indicates more manufacturers report improving conditions than worsening ones, suggesting sector expansion. Conversely, a reading below zero means more respondents experienced deteriorating conditions, pointing to contraction.
The distance of the index from zero provides further insight into the strength of these changes. For example, a reading of +20 suggests a stronger expansion than a reading of +5, while a reading of -15 indicates a more significant contraction than -5. Month-over-month changes in the index also reveal trends, with a rising positive number indicating accelerating expansion and a falling negative number suggesting accelerating contraction. These movements help observers gauge the momentum of the regional manufacturing economy.
Why the Index is Important
The Empire State Manufacturing Index is a significant economic indicator, providing early insights into the health of New York State’s manufacturing sector. Its timely release and focus on forward-looking sentiment make it a valuable tool for economists, policymakers, and businesses. The index can also serve as a proxy for broader national manufacturing trends, given similarities between New York’s industrial sector and other U.S. regions.
Economists and analysts monitor the index for clues about economic growth, inflation pressures, and employment trends. Businesses use the data to inform strategic planning, including inventory management and workforce decisions. Policymakers consider the index’s findings when evaluating economic health and formulating monetary and fiscal policies. The index offers a current snapshot of business sentiment, which can influence investment decisions and market confidence.