Gross Empire
Background
The Empire State Mfg survey computes of diffusion index of Prices Received and Prices Paid. Each constructed (roughly) as the net difference in the percent of respondents saying prices increased vs decreased in the survey month relative to the previous month.
Roughly speaking, we can think of the gap of these diffusion indices as an indicator of price margins; Prices of Ouptut minus Prices of Inputs.
The gap in Sep was -24.5. A terrible signal for margins.
The gap in August was -31.2. Even more terrible.
In fact, the gap averages 21.3 since Jul 2001. Margins can’t have been compressing / under pressure that entire time.
There tends to be a “bias” in the survey responses. Respondents overwhelmingly report that Net Prices Paid are rising more than they say Net Prices Received are rising. i.e. they are more likely to say (complain?) about costs than say (brag?) that their selling prices.
We can adjust in myriad ways. Here, I simply demeaned the difference in the diffusion indices; e.g. Net Prices Received minus Net Prices Paid - Avg(Net Prices Received minus Net Prices Paid). That’s the blue line.
I overlayed Gross Profit margins, which I compute via the BEA’s NIPA as Gross Value Added / Gross Output.
There are lots of reasons why these series differ: different industry and geographic coverage, price margins vs dollar margins, etc.. Yet, they track reasonably well.
Interpretation
Empire State suggests that the margin compression felt since summer 2023 might be bottoming.
Given the publication delays in the NIPA, we MIGHT still see another print of Gross Margin compression, before it follows the Empire State and bottoms.
Sources
Empire State Mfg Survey: https://www.newyorkfed.org/medialibrary/media/Survey/Empire/empire2025/ESMS_2025_09.pdf?sc_lang=en&hash=D02CC5C4F407EEDA9E0DBC0BF9D8F9AB
BEA NIPA: https://www.bea.gov
My National Income Project (where I compute Gross Margins): https://market-observatory.com/NationalIncome.html