The New York Federal Reserve Bank said that manufacturing sentiment eased in February, with colder weather likely dampening overall demand and activity. The Empire State Manufacturing Survey’s composite index declined from 12.5 in January to 4.5 in February. Even with the deceleration, manufacturers continue to expand, with the index positive for the 13th straight month.
Nonetheless, both sales and shipments took a hit in February. The index for new orders dropped from 11.0 to -0.2, falling to a slight contraction for the month. The percentage of manufacturers reporting higher sales for the month dropped from 34.7 percent to 26.1 percent, with those noting unchanged levels growing from 41.7 percent to 47.6 percent. Similarly, the shipments index declined from 15.5 to 2.1, with the percentage of respondents saying that shipments had declined rising from 17.1 percent to 26.2 percent. As noted, these decreases in activity were likely due to poor weather conditions, much like we observed in last week’s weaker industrial production figures.
Hiring remained one of the positives in the Empire State survey report. The index for the number of employees sustained much of its growth pace for the month, albeit with a slight decline (down from 12.2 to 11.3). Still, in light of the softer measures elsewhere, the fact that hiring remained relatively strong should be taken as a vote of confidence on the part of manufacturers for the future.
In fact, manufacturing leaders continue to be mostly positive in their outlooks for the next six months, speaking to the temporary nature of February’s decreases in activity. The forward-looking index for new orders increased significantly from 39.1 to 45.3, with the percentage of respondents thinking that sales would grow in the coming months up from 51.8 percent to 55.0 percent. Indeed, manufacturers also anticipate growth to expand for shipments (up from 30.6 to 43.3) and employment (up from 20.7 to 25.0).
Interestingly, both capital expenditures (down from 12.2 to 2.5) and technology spending (down from 12.2 to zero) decelerated for the month. We will need to watch to see where these measures go, as higher demand should lift investment activity moving forward.
Chad Moutray is the chief economist, National Association of Manufacturers.
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