New York manufacturing suffers from near-record decline

The New York Federal Reserve said the Empire State’s manufacturing survey fell 42 points in August to -31.3. It represented the second largest monthly drop ever for this closely watched measure of economic activity. The biggest drop was recorded in April 2020, when the start of the Covid-19 pandemic devastated the economy.

The August reading leaves the Empire State Survey at its lowest level since May 2020 and among the lowest since the survey began in April 2002. A reading below zero indicates a contraction.

“The main general business conditions index declined,” the report said. “New orders and shipments fell, and orders not fulfilled.”

Economists had expected a milder slowdown in the survey, which still pointed to expansion.

“Amazingly terrible,” Ian Shepherdson, chief economist at Pantheon Macro Economics, wrote in a note Monday. “To be sure, the momentum in the manufacturing sector has slowed, But this is a breakdown.”
However, Shepherdson said the scale of the deterioration is “hardly believable” because It does not appear to be supported by other indicators.

It should be noted that manufacturing in New York represents only a small part of the broader manufacturing base in America. Investors and economists will be on the alert for similar declines in the coming days and weeks from other regional and national manufacturing metrics.

“Dissapmatic news today suggests that weak domestic demand, high inflation and higher interest rates are limiting the sector’s progress,” Oren Klashkin, chief US economist at Oxford Economics, wrote in a note. “However, we won’t take much from this report because it likely paints a very pessimistic picture of manufacturing.”

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Only 12% of respondents in manufacturing reported improved conditions, while 44% said conditions had weakened, according to the survey collected between August 2 and August 9.

Looking ahead, manufacturing executives signaled concern: The future business conditions index came in at just 2.1, indicating that companies are not optimistic about the next six months. Although indications of future new orders and shipments are positive, they remain at “low levels”.

The good news is that the New York Fed said that labor market indicators are pointing to a slight increase in employment and a decline in the rates paid.

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