The New York Fed’s Empire State business conditions index, a key indicator of manufacturing activity in the state, showed a notable improvement in June despite remaining in negative territory for the seventh consecutive month. The index rose by 9.6 points to a reading of -6, surpassing economists’ expectations of -10.5, as reported by the Wall Street Journal.
A reading below zero on the Empire State index signifies deteriorating conditions in the manufacturing sector. Despite remaining in contraction, several subcomponents of the index saw positive movements. The new orders index increased significantly by 15.5 points to -1, marking its highest level in nine months. Shipments also rose by 4.5 points to 3.3, reaching the highest level in seven months. Unfilled orders saw a substantial increase of 9.1 points to 1 in June. Additionally, a new indicator, supply availability, inched up to -1 for the month.
However, the report noted moderation in price indices for June, while employment indicators showed weakness. Despite these mixed signals, there was a notable increase in optimism about future business conditions among manufacturers. The index for future business conditions surged by 16 points to 30.1, the highest level in over two years.
Looking at the broader economic picture, Michael Feroli, chief U.S. economist at JPMorgan Chase, highlighted that while the Empire State index has fluctuated slightly in negative territory over the past eighteen months, other manufacturing data has shown more positive trends.
On a national scale, the ISM (Institute for Supply Management) factory index declined to 48.7% in May, marking its second consecutive month of contraction. This raised concerns about the overall outlook for U.S. manufacturing.
Richard Moody, chief economist at Regions Financial Corp., expressed expectations for continued growth in the manufacturing sector but cautioned that it may be “halted and uneven.”
In response to the manufacturing data, stock futures indicated a lower opening on Monday, reflecting investor concerns, while the yield on the 10-year Treasury note rose to 4.26% during early morning trading. These reactions underscored the cautious sentiment prevailing in the markets amid mixed economic signals and uncertainty about the manufacturing sector’s trajectory.