U.S. Empire State Manufacturing Index Declines Sharply in December

The General Business Conditions Index from the Federal Reserve Bank of New York unexpectedly fell to 0.2 in December after surging to an unrevised 31.2 in November from -11.9 in October. The Action Economics Forecast Survey expected a retreat to 9.8. The percentage of respondents reporting an improvement in business conditions declined to 25.8% from 40.9% in November while the percentage reporting a decrease jumped to 25.6% from 9.7%. The survey responses were collected between December 2 and December 9.

The headline index reflects the answer to a single question concerning the state of economic activity. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. The reading fell to 51.3 this month and reversed most of its November surge to 56.6. 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).

Declines in the new orders and shipments indexes led the component weakness in December. The new orders index fell to 6.1 after surging to 28.0, as a lessened 27.3% of respondents reported increases in orders and a higher 21.2% indicated declines. The shipments index declined to 9.4 after jumping to 32.5 from -2.7 in October, as a lessened 30.7% of respondents reported increases and an increased 21.2% indicated declines. Unfilled orders improved -8.4, its third consecutive negative reading, after falling to -10.3 in November. The inventories index surged to 10.5 after rising to 1.0 from -7.5 in October, indicating the strongest inventory accumulation in roughly two years. The delivery times index fell to -7.4 after surging to 3.1 in November, suggesting the shortest delivery times in five months.

Employment deteriorated sharply in December and the length of the workweek shortened substantially. The jobs index declined to -5.8 this month after falling to 0.9 from 4.1 in October. A lessened 7.9% of respondents reported an increase in employment while a higher 13.8% reported a decline. The average workweek index fell to -3.9, suggesting a decline in hours-worked from 6.1 in November. It was the weakest reading in four months.

Inflation indicators declined sharply in December. The prices paid index fell to 21.2 from 27.8, the weakest reading in twelve months. Twenty-four percent of respondents reported paying higher prices in December versus 27.8% in November while 3.2% reported paying lower prices, up from zero in November. The prices received index declined to 4.2, also the lowest since July 2023, from 12.4 in November. A lessened 11.6% received higher prices, the weakest reading in six months.

Firms grew less grew less optimistic that business conditions would continue to improve in the months ahead. The future business activity index fell to the lowest level since August with 42% of respondents expecting conditions to improve over the next six months, down from 54.8% in October. Growth in orders and employment is expected to slow. The expected price index fell sharply and capital spending plans weakened slightly.

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 with zero separating expansion from contraction.

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