The Empire State Manufacturing Survey contracted in August at the steepest rate since the Great Recession. The composite index of general business conditions from the New York Federal Reserve Bank declined sharply from 3.9 in July to -14.9 in August, the lowest level since April 2009. With that said, the Empire State survey’s headline figure has bounced around a lot over the past five months, up one month and then down the next. It was contracted three times in that time frame. Overall, it is safe to suggest that manufacturers in the New York Fed region continue to report softness in the current economic environment, led by reduced demand and shipments, even as they remain cautiously upbeat moving forward.
The underlying data support this view. New orders have contracted in 5 of the past 6 months. In this report, the index for new orders (down from -3.5 to -15.7) plummeted, with the percentage of respondents saying that orders for them had declined in the month dropping from 28.8 percent in July to 34.4 percent in August. At the same time, the percentage noting increased sales dropped from 25.3 percent to 18.7 percent. Likewise, shipments (down from 7.9 to -13.8) contracted for the first time in just over two years, a sign that activity has pulled back significantly in the region. In addition, hiring (down from 3.2 to 1.8) slowed to a near crawl, and the average workweek (down from 4.3 to -1.8) returned narrowed once again after expanding in the prior two months.
Such findings might be more worrisome if it were not for the more-optimistic forward-looking indicators. Indeed, the overall index for general business conditions six months from now rose from 27.0 to 33.6. New orders (down from 32.2 to 29.4) are expected to expand strongly in the months to come, despite some easing in confidence in August. The same could be said for shipments (up from 25.4 to 33.0), capital expenditures (down from 21.3 to 17.3) and technology spending (up from 10.6 to 13.6). On the other hand, labor market growth is anticipated to grow more modestly, including hiring (down from 9.6 to 3.6) and the average workweek (up from -3.2 to 1.8).
Chad Moutray is the chief economist, National Association of Manufacturers.
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