The New York Federal Reserve Bank’s Empire State Manufacturing Survey said that manufacturing activity continued to contract in its district for the sixth straight month. The composite index of general business conditions was -7.8 in January, slightly lower than the -7.3 reading observed in December.
All of the historical data were revised with new seasonal adjustments, as is customary to start a new year. This suggests that economic activity remains soft, with most of the key indicators in negative (or contracting) territory.
Shipments had improved in November and December, but they are starting January with a decline. The index for shipments dropped from 11.9 in December to -3.1, with over 29 percent of respondents saying that they had reduced fewer shipments this month than last and almost 45 percent reporting no change. Measures for new orders, hiring, and the average workweek were also all negative. The vast majority of firms in the district appear to be in a wait-and-hold pattern on employment, with 72 percent of them saying that the number of employees was the same.
Fewer of them plan to hire, as well, but that figure is at least positive. Roughly 23 percent of manufacturing firms in the New York region intend to have more employees six months from now, with 62 percent expected to not hire. Overall, manufacturers continue to be cautiously optimistic about the first half of 2013. The pace of expected employment and capital spending growth has eased from the month before, but there were improvements in anticipated sales and shipments.
The Empire State survey data are troubling in that they reflect a manufacturing community in the New York region that remains nervous. New orders were only positive once in the past seven months, and that was probably due to Hurricane Sandy. It is more difficult for these firms to start hiring and investing again when they see their sales challenged.
Despite hope for improvements down the line, it is notable that manufacturers are more skittish on hiring and capital spending plans. This might change if there is a turnaround in sales, but until then I would expect continued weakness. Uncertainties about the U.S. fiscal situation – even with the recent fiscal cliff deal – also tend to hamper activity.
Chad Moutray is chief economist, National Association of Manufacturers.