The New York Federal Reserve Bank’s Empire State Manufacturing Survey reported a slight improvement in overall business conditions in July. The composite index of general business conditions rose from 2.3 in June to 7.4 in July. This suggests a pickup in manufacturers’ sentiment, mirroring an increase in shipments.
New orders declined, with the index dropping from 2.2 to -2.7. Twenty-nine percent of respondents said that their orders were falling, which is similar to the reading last month. The shift was mainly due to fewer of them saying that their new sales had fallen. The concern here is that new orders can be a proxy for future activity; hence, a decline in new orders is not a positive sign. Concerns about sales to Europe and Asia, as seen in some special questions, help to explain some of the mixed emotions that respondents are having regarding the economy.
The pace of employment, notably, increased in July, with the index rising from 12.4 to 18.5. This corresponded to the percentage of respondents saying that their employment was falling declined from 12.4 percent to 6.2 percent. About one-quarter of them said that the number of workers was rising, which was unchanged from June. Meanwhile, the average workweek was flat.
To the extent that net employment is rising (or at least not falling) in the region, this is a testament to continued cautious optimism moving forward. Manufacturers were slightly less positive about the next six months, but remain optimistic overall. The forward-looking general business conditions index fell from 23.1 to 20.2. The expansion of new orders, employment, and capital spending also slowed. The pace of shipments and capital spending ticked up a bit.
Chad Moutray is chief economist, National Association of Manufacturers.