The Factory Floor Got Busier and Shipped Less
Shipments went negative. The workweek hit its highest level in nearly five years. Both numbers came out of the same survey.
Manufacturing in New York State went from solid growth to almost none in four weeks.
The Federal Reserve Bank of New York released its September Empire State Manufacturing Survey on September 15. The general business conditions index came in at 7.6, down from 20.6 in August.
The survey ran from September 2 to September 10. It asks factory executives in the New York district what changed this month and what they expect six months out.
Coverage read it as a factory sector cooling off. Growth moderating, the strong month behind it, a survey settling back toward flat.
The framing was about the slope. Thirteen points off the headline, and the story wrote itself.
The labor lines went the other way. The index for the average workweek rose ten points to 17.0, which the New York Fed called its highest reading in nearly five years.
The employment index sat at 10.6. Firms were adding people and adding hours at the same time.
Shipments went negative. That index came in at minus 3.2, with new orders barely positive at 2.0.
Plants ran longer and moved less out the door. That combination is the part the slope story leaves out.
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A cooling headline and a lengthening workweek describe the same four weeks.
They do not describe the same condition.
This is an orders-hours inversion.
Hours normally follow orders. When the order book thins, hours are the first cost a plant cuts, because cutting them carries no severance and reverses in a week.
September ran the other way. Orders flattened, shipments fell, and the workweek reached a level the district has not seen in almost five years.
Orders are set by customers. Hours are set inside the plant, which makes them the half of this the firms actually chose.
One reading is that firms are holding staff and hours through a soft patch they expect to end. Another is that rising input costs are slowing what gets finished and shipped.
The survey does not separate the two. It records the hours and the shipments without asking why they parted.
The prices paid index rose to 63.1 from 58.1. The New York Fed called that its highest in nearly five years as well.
Prices received rose too, to 28.1 from 23.1. Input costs are running at more than twice that level.
Not everything in the survey turned down. Expected business conditions six months out held at 29.0, and capital spending plans came in at 14.9.
The firms answered the hours question themselves in the forward lines. Expected employment fell to 20.0 from 28.2, and the expected workweek dropped to minus 5.0 from 1.0.
Hours sit at a five-year high today. The plants running them do not plan to keep them there.
Optimism about next spring survived the month. The plan for next month's overtime did not.
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What settles it
Manufacturing average weekly hours: Watch the manufacturing line in the monthly Employment Situation report. A longer national workweek would put the pattern beyond one district, and a shorter one would keep it regional. (Source: Bureau of Labor Statistics)
New orders for durable goods: Watch the monthly advance report on manufacturers' shipments, inventories and orders. Rising orders would mean the hours are being worked into demand that is arriving, and falling orders would mean they are being worked into inventory. (Source: Census Bureau)
Manufacturing new orders index: Watch whether the national reading holds above or below 50. Above 50 would mean order books are still filling while hours run high, and below 50 would put the country where the New York survey already sits. (Source: Institute for Supply Management)
Hours measure what a plant pays for. Shipments measure what leaves it.
The two are not the same number, and September is the month they stopped agreeing.
Talk soon,
The Playbook Daily
