The Decline in Empire State Manufacturing Activity Slowed in February

The Federal Reserve Bank of New York reported that its index of factory sector activity rebounded in February although it continued to point to declining manufacturing activity. The index rose to -5.8 in February after having plummeted to -32.9 in January. A reading of -21.0 had been expected in the Action Economics Forecast Survey. Twenty-six percent of respondents reported that conditions had improved over the month, while 31.9% reported that conditions had worsened.

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 index also rebounded in February, to 48.3 from 45.5 in January, but remained below the critical 50 value that separates expansion from contraction.

The new orders reading rebounded to -7.8 in February from -31.1 last month but remained in negative territory for the fourth consecutive month. The shipments index rose to 0.1 from -22.4 in January, indicating that shipments were relatively steady in February. The unfilled orders index continued to decline at -9.2, but at a slower pace than in January (-14.3). The delivery times index fell 10 points to -9.2, its first significant negative reading since before the pandemic, indicating that delivery times shortened. Shortening delivery times have previously been interpreted as indicating mending supply chains, but now likely reflect the slowing pace of activity. The inventories index was little changed at 6.4, pointing to a small increase in inventories.

The employment index to -6.6, its first negative reading in over two years, indicating that employment levels declined for the first time since early in the pandemic. The average workweek index remained negative at -12.1, indicating that hours worked shrank for a third consecutive month.

Input prices and selling prices increased at a faster pace in February than last month. The prices paid index rose 12 points to 45.0, and the prices received index climbed 10 points to 28.4. Fifty-one percent of respondents reported paying higher prices for inputs while only 6.4% reported paying lower prices. Thirty-four percent of respondents reported receiving higher prices while only 5.5% reported receiving lower prices.

Expectations for the next six months continued to improve in February. The index of expected general business conditions in six months rose to 14.7 from 8.0 in January and 6.3 in December. It was the highest level since May 2022. The components indexes, however, did not exhibit as much optimism as did the headline expectations index. Indexes for expected new orders and shipments remained elevated, but each fell in February. The expected employment index also declined sharply. The indexes of expected prices paid and prices received each rose meaningfully in February.

The N.Y. Fed survey data is contained in Haver’s SURVEYS database. The latest survey was conducted between February 2 and February 9. The expectations series is in Haver’s AS1REPNA database.