Note: this article has been updated substantially as of 2010/05/17 11:20 AKST. Additional minor updates made 2010/05/17 22:11 AKST.
Today I investigate the historical relationship between the Empire State Manufacturing Survey business outlook, which inquires as to manufacturing outlook in New York state over the next six months, and the S&P 500. This investigation is largely exploratory, and its results are not intended to be used to make trading decisions. The analysis starts in January 2001 and makes use of data available from the NY Fed and Yahoo! Finance. The raw monthly financial data available from Yahoo! is not suitable for this analysis, so I estimated report dates under the heuristic that the survey report was made on the first trading day each month from the 15th, inclusive, and calculated monthly EOD returns using those dates.
A careful analysis reveals that a statistically significant, positive, first-order correlation has existed in the past between S&P 500 percent returns in the month prior to the report and the change in manufacturing outlook (one-tailed alpha=0.007). In addition, historically, a statistically significant, positive, first-order correlation has existed between changes in New York state manufacturing outlook and one-month S&P 500 returns starting five months forward from the date of the report (one-tailed alpha=0.077). When controlling for outliers, the significance five months forward appears less certain (one-tailed alpha=0.186). No other statistically significant first-order correlations were observed between one-month S&P 500 returns (EOD to EOD) and the change in Empire State manufacturing outlook in one-month returns at one month intervals coinciding the survey (final day=report date) or up to twelve months afterwards.
Please be aware: The New York Federal Reserve applies retroactive seasonal adjustments to the Empire State Manufacturing Survey indices. I have not yet determined the impact of retroactive seasonal adjustments on these models. In addition, the survey was not reported to the public until April 2002, although it was conducted for the NYFed as early as January 2001.
Attachment: Estimated Historical Report Dates of the Empire State Manufacturing Survey
