U.S. Empire State Factory Index Returns to Negative Territory in October

The General Business Conditions Index from the Federal Reserve Bank of New York declined to -11.9 in October after surging to 11.5 in September. The decline brought it to the lowest level since a May level of -15.6. A reading of 3.0 had been expected in the Action Economics Forecast Survey. The percentage of respondents reporting an improvement in business conditions fell to 26.6% from 32.7% in September while the percentage reporting a decline in activity rose to 38.5% from 21.2% last month. The headline index reflects the answer to a single question concerning the state of economic activity. The survey responses were collected between October 2 and October 9.

Haver Analytics calculates a composite index, which is comparable to the ISM manufacturing index. That index declined to 48.1 in October from 52.0 in September. A level of 50 is the breakeven point between expansion and contraction. The index is the average of five diffusion indexes; new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

The new orders index fell to -10.2 in October from 9.4 in September. A lessened 29.8% of respondents reported higher orders while an increased 40% reported order declines. The shipments index fell to -2.7 from 17.9. The unfilled orders index dropped to -2.2 from 2.1 in September. Delivery times lengthened as the index fell to -3.2 from -1.1. Inventories weakened this month to -7.5 from a break-even level of zero in September.

Labor market conditions were greatly improved in October. The employment index of 4.1 compared to -5.7 in September. It was the first month above the break-even level of 50 in twelve months. An increased 12.7% of respondents reported increases in employment while a lessened 8.6% reported lower employment. The hours-worked index increased to 4.7 after rising to 2.9 in September. It was only the second positive reading following ten months where it stood below zero.

Inflation pressures increased this month. The prices paid index rose to 29.0 after easing to 23.2 in September and falling to 23.4 in August. A higher 33.3% of respondents were paying higher input prices, while a greatly reduced 4.3% reported paying lower input prices. The prices received index also rose to 10.8 from 7.4 in September. It was the highest level since May as 17.2% of respondents reported an increase in prices while 6.5% reported price declines.

Companies grew more optimistic about the outlook in October. The index for future business conditions of 38.7 this month compared to 30.6 in September, and was the highest level since October 2021. The outlook for shipments, unfilled orders, vendor performance and employment improved, but new orders eased. The future prices paid index slipped just slightly from its highest level since February 2023, but capital spending plans rebounded sharply.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease.

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