The Empire State Manufacturing Survey indicates
that conditions for New York manufacturers improved
significantly in June. After three months of lackluster
readings, the general business conditions index bounced
up 18 points, to 25.8.
The new orders and shipments indexes also rose. The
prices paid index climbed several points, while the
prices received index fell. Employment indexes were
marginally positive. Future indexes indicated a high
level of optimism for the six-month outlook, while capital
spending and technology spending indexes dropped markedly.
This month, manufacturers were asked a series of supplementary
questions about changes in their capital spending plans
from 2006 to 2007; similar questions had been asked
in the October 2006 survey (see Special Questions tab).
Overall, 45 percent of responding firms indicated that
they would invest more in capital in 2007 than in 2006,
while roughly one in four firms reported reductions
in overall capital spending.
The survey results also suggested that, of the broad
categories of capital, non-computer-related equipment
would see the most widespread increase in investment
spending. Sales and demand trends were the most commonly
cited driver of both increases and decreases in capital
spending in 2007.
General Business Conditions Index Leaps
The general business conditions index surged 18 points,
to 25.8, after languishing at relatively low levels
in March, April, and May. The June reading returned
this index to the high levels that prevailed for much
of the preceding year. Forty-three percent of respondents—compared
with 26 percent in May—reported that conditions
had improved in June, while 17 percent reported that
conditions had deteriorated. The new orders index climbed
for a third consecutive month, rising 9 points to 17.2,
and the shipments index rose sharply from 14.1 to 29.8.
The unfilled orders index dipped below zero, to -2.1.
The delivery time index was also negative, at -1.1,
and the inventories index hovered just above zero at
Prices Indexes Move in Opposite Directions
The price indexes indicated that prices were continuing
to rise, although the indexes moved in opposite directions.
The prices paid index rose from 34.4 to 42.6, suggesting
that increases in prices paid accelerated in June. Forty-three
percent of respondents reported paying higher prices
and none reported paying lower prices. The prices received
index dropped from 15.6 to 9.6, indicating that prices
received were rising but at a slower pace than last
month. Employment indexes were positive, but barely
so, with the index for number of employees at 3.4 and
the average workweek index at 3.2.
Expectations Remain Upbeat
Future indexes were generally favorable. After rising
sharply in May, the future general business conditions
index declined somewhat in June. Nevertheless, at 44.1,
it remained high compared with its levels over much
of the past year. The future new orders and shipments
indexes, both around 45, were also at favorable levels.
Future price indexes fell: the future prices paid index
dropped to 48.9 while the future prices received index
fell more sharply, from 36.7 to 21.2. Future employment
indexes were positive but below May levels. The capital
expenditures index fell markedly from its average level
of the past several months, dropping to 18.1, its lowest
level in considerably more than a year. The technology
spending index also declined, to 18.1.
Firms Indicate Increased Spending on Equipment
In a series of supplementary questions, manufacturers
were asked about their capital spending plans for 2007
relative to their actual spending for 2006, both overall
and for a few broad categories of capital. The same
questions were asked in an October 2006 survey. In the
current survey, 45 percent of responding firms reported
increased capital spending in 2007—roughly the
same percentage as in last October’s survey—while
25 percent, up from 21 percent in the earlier survey,
reported reductions in capital spending.
When queried about spending on certain broad categories
of capital, more manufacturers in the current survey
reported increases than decreases in investment in equipment—especially
non-computer-related equipment—though by a smaller
margin than in last October’s survey. Current
survey results also point to a modest increase in spending
on computer software and little or no change in spending
Respondents were also asked about the extent to which
various factors contributed positively or negatively
to their planned changes in capital spending. Slightly
more than half of those surveyed cited (improving) trends
in sales and demand as a positive contributor, while
slightly less than 50 percent indicated a need for labor-saving
equipment and long-term (predetermined) investment schedules.
The most widely cited factor contributing to a reduction
in capital spending in 2007 was (unfavorable) trends
in sales and demand, followed closely by unusually high
levels of capital spending in 2006—a response
that suggested a return to more normal levels of spending.