A Bloomberg survey had expected the Empire State index to dip to 15 in November from 15.73 in October. The index was at 4.14. in September. Readings above zero indicate manufacturing activity is growing; below zero, contracting.
Several key components fell below zero in the latest report. New orders plummeted 37 points to minus 24.38, and shipments fell from 25.89 to minus 6.13. The number-of-employees component dipped from 11.69 to 9.09, and the average workweek tumbled from 19.48 to minus 12.99.
The November report's bright spots were the futures components, which generally climbed.
Holding More Cash Than Usual
In the survey's supplemental section, manufacturers were asked about their cash holdings and debt financing. A majority of respondents, 52%, reported that they expected their outstanding debt levels to remain unchanged over the next year, 30% expected debt to decline and 18% foresaw an increase.
Regarding cash holdings, 35% of firms said they were currently holding higher-than-usual (excess) cash balances, while just 22% indicated that cash balances were lower than usual.
Concerning the 12-month outlook, 42% of respondents expected their cash holdings to increase, and 19% said cash balances would decline. Finally, on capital spending over the next year, respondents indicated that they would use cash to finance nearly 60% of expenditures, the same as in November 2009, but up from 46% in November 2008.
A Decided Disappointment
Economists, business executives and investors monitor the Empire State index because 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 October, the ISM index rose 2.5 points to 56.9 -- a level that confirmed an ongoing economic expansion.
Still, investors shouldn't read too much into the report. As one month's data, it's not nearly enough to indicate a trend, which requires three to five months of data. That said, the November Empire State report does provide another sign that the economic recovery continued in early fall but at a cooler pace. That further confirms slowdown data released by the U.S. Federal Reserve earlier this month.