Empire State Manufacturing Activity Plunges in March

The Federal Reserve Bank of New York reported that its index of factory sector activity plunged to -24.6 in March from -5.8 in February. This is the seventh month of the past eight that the index has been in negative territory, indicating declining manufacturing activity in the FRBNY district. A reading of -7.6 had been expected in the Action Economics Forecast Survey. Twenty percent of respondents reported that conditions had improved over the month, down from 26.1% in February, while 44.7% reported that conditions had worsened, up from 31.9% in February. The most recent survey was taken between March 2 and March 9.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components, as are the PMIs. Haver Analytics constructs an ISM-adjusted series, which is comparable to the ISM manufacturing index. This calculated index fell to 44.5 in March, its lowest reading since May 2020, and remained well below the critical 50 value that separates expansion from contraction.

Individual components were very weak in March. New orders plunged to -21.7 from -7.8, and shipments fell to -13.4 from 0.1 in February. Unfilled orders and delivery time indexes each rose in March but remained in negative territory. Shortening delivery times have previously been interpreted as indicating mending supply chains, but now likely reflect the slowing pace of activity. The employment index fell to -10.1 from to -6.6, its second consecutive negative reading, indicating that employment levels continued to decline for the first time since early in the pandemic. The average workweek index remained negative at -18.5, its weakest reading since May 2020, indicating that hours worked shrank for a fourth consecutive month.

The rise in both prices paid and prices received slowed in March. The prices paid index fell to 41.9 from 45.0, while the prices received index dropped to 22.9 from 28.4. Forty-four percent of respondents reported paying higher prices for inputs, down from 51.4% in February, while only 1.9% reported paying lower prices versus 6.4% in February. Thirty percent of respondents reported receiving higher prices, down from 33.9% in February, while 6.7% reported receiving lower prices versus 5.5% in February.

Expectations for the next six months deteriorated markedly in March from February. The index of expected general business conditions in six months fell to 2.9, suggesting that firms do not expect much improvement over the next six months, from 14.7 in February. This was the lowest reading in four months. New orders and shipments are expected to increase modestly, and employment is expected to be somewhat higher. The indexes of expected prices paid and prices received each fell meaningfully in March. Capital expenditures are still expected to rise but at a slower pace than previously while spending on technology is expected to pick up slightly.

The N.Y. Fed survey data are contained in Haver’s SURVEYS database. The expectations series is in Haver’s AS1REPNA database.