The New York Federal Reserve said its Empire State Manufacturing Survey fell 42 points to -31.3 in August. This is the second largest monthly decline on record for this closely watched indicator of economic activity. The biggest drop was recorded in April 2020 when the economy was hit by the outbreak of the Covid-19 pandemic.
The August reading exits the Empire State survey at its lowest since May 2020 and one of the lowest since the survey began in April 2002. Any reading below zero indicates a contraction.
“The headline index of terms and conditions has crashed,” the report reads. “New orders and shipments crashed, and unfulfilled orders went down.”
Economists had expected a more modest slowdown in the survey that would still signal expansion.
“Frighteningly awful,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note Monday. “Momentum in manufacturing has certainly slowed, but this is a meltdown.” But Shepherdson said the extent of the deterioration is “hard to believe” as it doesn’t appear to be supported by other indicators.
It’s worth noting that New York production represents only a small portion of America’s broader manufacturing base. Investors and economists will be watching for similar declines in other regional and national manufacturing indicators in the coming days and weeks.
“Today’s pessimistic news flow suggests that flagging domestic demand, high inflation and rising interest rates are holding back the sector’s progress,” Oren Klachkin, senior US economist at Oxford Economics, wrote in a statement. “However, we would not get too much of this report as it probably paints an overly pessimistic picture of manufacturing.”
According to the poll, conducted between Aug. 2 and 9, just 12% of respondents in manufacturing said conditions had improved, while 44% said conditions had gotten worse.
Looking ahead, manufacturing executives expressed concern: the index of future business conditions came in at just 2.1, suggesting companies are not optimistic about the next six months. The indices for future incoming orders and deliveries are positive, but remain at a “low level”.
The good news is that NY Fed jobs indicators are signaling a modest increase in employment and a fall in prices paid.