The New York Federal Reserve’s Empire State business-conditions index, a critical barometer of manufacturing health within the state, underwent a notable decline of 1.3 points in May, plummeting to a concerning negative 15.6, as disclosed by the regional Federal Reserve bank on Wednesday. This figure fell short of economists’ projections, who had anticipated a negative 10 reading based on a survey conducted by the Wall Street Journal. The downturn marked the sixth consecutive month that the index remained submerged below zero, signaling an enduring trend of deteriorating conditions within the manufacturing sector.
Diving deeper into the intricate details of the report, the index pertaining to new orders experienced a slight dip of 0.3 points, settling at negative 16.5 in May. Meanwhile, the shipments index witnessed a notable surge of 13.2 points, although it continued to languish in negative territory at negative 1.2. Despite a modest upswing in unfilled orders during the month of May, both delivery times and inventories faced declines. Additionally, both price indices, alongside the employment index, observed downward movements, although there was a marginal increase noted in the workweek.
Despite subdued optimism regarding future business conditions, with the index for future business conditions dipping by 2 points to 14.5, concerns regarding capital expenditure plans lingered, casting a shadow over the sector’s outlook.
Zooming out to capture the broader landscape, the factory sector has grappled with multifaceted challenges in the aftermath of the pandemic. Despite hopes for a robust rebound, expectations have been tempered in recent times, particularly as the Federal Reserve maintains interest rates at relatively elevated levels. This sentiment is mirrored by the national ISM factory index, which reverted to contraction territory in April after briefly flirting with expansion in March.
Richard Deitz, economic research advisor at the New York Fed, underscored the sluggishness pervading manufacturing conditions in New York State during May, with both activity and orders continuing their downward trajectory. Moreover, weakness was also discernible in labor market conditions, as evidenced by declines in both employment and hours worked.
Looking ahead, Ian Shepherdson, chief economist at Pantheon Macroeconomics, observed a marginal uptick in the average level of the Empire State subindexes, which correspond with the structure of the national ISM manufacturing index. However, Shepherdson sounded a note of caution, suggesting that this uptick may not be substantial enough to signal an uptick in the ISM reading. Moreover, he highlighted a troubling decrease in capital expenditure intentions for the next six months, which plummeted to a 12-month low. However, he speculated that this downtrend might be attributed to residual seasonality.
In response to the report, the stock market opened on a positive note on Wednesday, buoyed by softer consumer inflation data, while the 10-year Treasury yield receded to 4.391%, marking a five-week nadir in early morning trading.