What it means
Each month, the Federal Reserve Bank of New York asks a panel of manufacturing executives in the state whether conditions have improved, stayed the same or worsened compared with the previous month, and what they expect in the future. The responses cover areas such as general business conditions, new orders, shipments, employment, inventories and prices.
The results are published as a set of indexes, with the headline figure being general business conditions. The headline index is a diffusion index.
It is calculated as the percentage of respondents reporting improvement minus the percentage reporting deterioration, so a reading of zero means that the two groups are balanced. It is not a measure of the level of output, only of the direction of change, which is why a reading of +5 does not mean that the economy grew by 5%.
Markets pay attention because the survey comes out earlier than many national figures. It is sometimes used as an early signal for manufacturing trends in the wider United States, and analysts compare it with other regional surveys and with national manufacturing indicators.
Sharp surprises relative to forecasts can move currency and bond markets. The index is volatile from month to month, as it is based on a limited sample of respondents, so analysts look at the trend over several months rather than a single reading.
They also look at the sub-indexes, since a strong headline figure with weak new orders can hint at trouble ahead. For a business, the practical use is as a sentiment check.
A finance team might use it alongside its own order book and supplier data to adjust sales forecasts, production plans or inventory targets. It should not replace a company's own data, but it can offer context on whether a change is local or part of a wider trend.
The survey also asks about expectations six months ahead, and these future indexes are often more upbeat or gloomier than current conditions. A widening gap between current and future readings can suggest that managers expect a turning point.
In practice
Real-world examples.
Example
A currency trader sees that the index came in at +12 when economists expected +3. She reads this as a sign of stronger manufacturing activity and adjusts her view of the US dollar.
Example
A machinery distributor tracks the new orders sub-index over six months. When it falls from +10 to -8, the sales director revises the quarterly forecast of equipment orders downward.
Example
A bank's economist includes the index in a monthly report to commercial lending staff. The report notes that the three-month average has remained positive, supporting steady lending to local manufacturers.
Formula
Calculation
General business conditions index = Percentage reporting improvement - Percentage reporting deterioration
Suppose a monthly survey finds that 38% of manufacturers report better general business conditions, 42% report no change and 20% report worse conditions. Index = 38 - 20 = +18. The 42% reporting no change does not affect the result, and a positive reading of 18 indicates that conditions are expanding on balance.Case study
Seen in the real world.
Hudson Valley Components is a fictional manufacturer of precision parts that supplies New York State factories. Its finance director noticed that the Empire State Index had fallen for three months in a row, with the new orders reading moving from +9 to -14. Her own order book still looked healthy.
She chose to take the signal seriously and asked the sales team to contact its main customers. Several said they were trimming inventories and delaying purchases. The company reduced its next quarterly purchases of raw materials by 15% and kept more cash in reserve.
In this illustrative story, orders did soften two months later, but because the company had trimmed its stock, it avoided building up unsold inventory. The finance director stressed that the index was only one input, and that its value lay in prompting her to ask better questions. She now adds the index to her monthly dashboard next to the company's own order backlog and lead times, so that outside sentiment and internal facts can be compared at a glance.
Watch out
Common mistakes.
- Reading the index as a percentage growth rate. It is a diffusion index, showing the balance of respondents reporting improvement versus deterioration.
- Overreacting to a single month. The survey sample is limited and monthly readings can swing widely.
- Assuming it covers the whole economy. It covers manufacturers in New York State only, although it is often used as an early hint for national trends.
Questions
People also ask.
Who publishes the index?
The Federal Reserve Bank of New York publishes it as part of its Empire State Manufacturing Survey.
What does a negative reading mean?
More respondents report worsening conditions than improving ones, which points to contraction on balance.
How often is it released?
It is released monthly, usually around the middle of the month.
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