Empire State Manufacturing Index The Empire State Manufacturing Index, which measures activity in the tell-tale New York region, offers a tightly focused snapshot of key economic conditions, a picture that often can be extrapolated out to predict the state of the rest of the country. This month, it featured mixed signals, but they're nevertheless signals that confirm an ongoing manufacturing expansion.

Manufacturing activity in the New York region slowed in May, with the top-line index decreasing to 19.1 from 31.9 in April, according to data compiled by the New York Federal Reserve. Still, May marked the tenth consecutive month of improving business conditions in the region. Readings above zero indicate that manufacturing activity is growing; below zero, that it's contracting.

Further, most of the index's components confirmed the slower expansion conditions. The new orders component fell 15 points to 14.3, and the shipments component plunged 21 points to 11.3.

Meanwhile, pricing pressure persisted in May, with the prices paid component rising 3 points to 44.7. Also, the inventories component declined 10 points to 1.3 -- a sign that inventory levels remained relatively steady after growing in March and April.

Economists, business executives, and investors monitor the Empire State index because, among other qualities, it typically provides an early read on larger manufacturing surveys released later in the month, such as the Institute for Supply Management's manufacturing survey. In April, the ISM index rose to 60.4 from 59.6, confirming an ongoing expansion.

Bears Shouldn't Overreact to Slowing Growth


Given May's slower growth conditions in the New York region, it would not be a surprise to see the market's bears cite the report as a sign that the current expansion is in danger of faltering. But the report provides its own best rejoinders to such negativism: its employment component and its supplemental survey.

In May, the employment component rose 2.1 points to 22.4 -- its highest reading since April 2004 and the fifth consecutive rise for the component, which means manufacturers continue to see a need for more employees.

Also, in the New York Fed's supplemental section, which in May focused on prices, manufacturing companies reported a median increase of 2% in their selling prices in the previous 12 months. Even more significant, companies expect to increase prices by a median of 3% in the next 12 months.

That employment and price data provide compelling evidence against those who argue that the May report signals the start of a double-dip recession. Manufacturers would not feel confident about adding staff and raising prices if they saw a substantial decline in demand or recession conditions up ahead. Yes, manufacturing activity did slow in the New York area in May, but the expansion continues.

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