V-Shape Recovery in the Empire State Manufacturing Index

Good news out of the United States manufacturing sector – the Empire State index, which reflects the manufacturing activity in the state of New York, bounced strongly. So big is the bounce that we can talk about a V-shape recovery in the makings.

While second-tier data in normal economic times, it is of particular importance if we use it as a sign of improvement in the overall manufacturing sector. The coronavirus lockdown sent many economic indices in unprecedented territories, and a V-shape recovery is every economist’s dream.

June 2020 Empire State Manufacturing Survey

The survey is released monthly and is a leading indicator of economic health. Its interpretation is straightforward – values bigger than zero show improving conditions, while values below zero reflect a deterioration in the sector’s performance.

Every month, around two-hundred manufacturers in the New York state area answer questions related to business activity, factory orders, employment, and so on. For this particular survey, the responses were collected between June 2 and June 9.

The index climbed forty-eight points, almost reaching the zero level again. After reaching record lows in April and May, such a bounce is good news for the manufacturing sector in the area and for the overall perspective for the American manufacturing industry too.

More than a third of respondents reported improved conditions in June when compared with the previous months, and shipments showed a slight increase. The prices paid index improved thirteen points, leading to firm selling prices, a positive development in light of the recent deflationary fears in America and all over the world.

However the biggest improvement is seen in the level of optimism. Such surveys also ask business respondents to rate how they see their economic activity in the six months ahead. Optimism or pessimism is enough to shift expectations from an expanding to a contracting sector, and the other way around.

This time, optimism shoots up, rising to its highest level in more than a decade. Furthermore, the capital expenditures index rose close to the zero level, indicating businesses’ willingness to increase capital spending. Last but not least, the future employment index rose too, indicating a recovery in the months ahead.

In times when negative economic headlines dominate, an economic release like June’s Empire State Manufacturing Survey is a bright spot investors should use when anticipating the US economic recovery.

Will we see V-shape patterns in other areas too?

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