by Mish

Setting reality aside, let’s take a look at the Empire State Survey which kicks off another month of regional surveys.

The Econoday consensus estimate for the Empire State region diffusion index was 15. The actual report was +9.8. Econoday praised this meaningless report as welcome.

" A little less strength is probably welcome in the New York Fed’s manufacturing sample where gains at times have been unsustainable. The Empire State index came in at 9.8 in July vs Econoday’s consensus for 15.0 and against June’s very hot 19.8.

New orders are strong at 13.3 but down nearly 5 points from June while unfilled orders moved back into contraction to minus 4.7. Employment slowed to 3.7 for a 4 point dip while shipments also slowed but are still very solid at 10.5.

Another sign of slowing is a nearly 8 point dip in general expectations to 34.9 which is relatively moderate for this reading, one that always runs well above current assessments. Inventory building is slowing this month with price readings stable and favorable as both inputs and selling prices are showing positive pressure.

This report has been very strong this year and well above actual strength in the nation’s factory sector. Watch for Thursday’s Philly Fed report for the second regional update this month on the factory sector and where another outsized gain, at 23.9, is the Econoday’s consensus."

Manufacturing Production

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Manufacturing production is about where it was in 2005.

Manufacturing Production Year Over Year

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Diffusion Index Problems

Manufacturing production is up 1.36% from a year ago. Yet the regional manufacturing reports and the ISM have been on fire.

Diffusion indexes like the regional manufacturing reports and the ISM survey have a flaw in that size does not matter, only direction matters. One small company improving counts will offset a large company faltering.

For example, Ford and GM carry no more weight than a company employing a hundred workers. A tiny company hiring 10 workers will offset 3,000 layoffs at Ford. A tiny company increasing production will offset a larger company decreasing production, or vice versa.

These kinds of things can average out. But they haven’t for a year. Industrial production has not lived up to expectations from the regional reports.

Mike “Mish” Shedlock

Cracks Appear in Philadelphia Fed Regional Manufacturing Report

Actual industrial output has been far weaker than the regional Fed manufacturing reports and the ISM report for at least a year.

Philadelphia Fed Manufacturing Survey Shows Employment Index Highest in 48 Years: Reality Check Time

I stopped commenting on the Fed regional manufacturing reports some time ago because they bear little resemblance to reality. Today's Philly Fed report is a real "gem," showing just how screwed up diffusion indexes are, so it's worth a look.

Same Old Song: Bogus Philly Fed and Regional Manufacturing Reports

The Fed's regional reports have been so wrong for so long I stopped reporting on them. Just for grins let's take a peek.

Philly Fed, Another Strong Regional Activity Report: Why Doesn’t Factory Data Match?

The Philadelphia Fed Business Outlook Survey of manufacturing activity has been in positive territory for eight months. New orders are up, unfilled orders are up, Employment is up, and work hours are up.

Another ISM/PMI Divergence: Non-Manufacturing

On April 3, I noted a huge discrepancy between the ISM manufacturing report and Markit’s PMI manufacturing report.

Empire State Manufacturing Survey Turns Negative: Welcome News?

The Empire State Manufacturing Survey kicks off the list of regional surveys by the Fed.

Too Hot to Handle Twist: Econoday “Thankful” for Empire State Manufacturing Cooling

The Econoday consensus estimate for the Empire State manufacturing index was +15.0 in a range of 13.0 to 17.2.

Industrial Production Flat, Manufacturing Jumps: Another Weather-Related Phenomenon?

Today’s industrial production report, for February, shows weak headline numbers.

Services PMI and Non-Manufacturing ISM Diverge Strongly Again

The soft data divergence between the ISM Non-Manufacturing Report on Business and the Markit Services PMI widened again today. Let’s take a look at each report.