- New York State Factory Index falls to -32.9 in January
- New orders collapse; stagnant job growth
- Prices paid by manufacturers are increasing at a slower rate
WASHINGTON, Jan 17 (Reuters) – New York state’s manufacturing sector contracted sharply in January as orders collapsed and job growth stalled, pointing to continued weakness in domestic manufacturing activity, and they expect little improvement in the next six months.
The New York Federal Reserve’s survey on Tuesday offered an early reading of conditions in one of the sectors hardest hit by the Fed’s fastest interest rate hike cycle since the 1980s. It showed a drop of demand and better supplies of raw materials that slowed inflation at the factory gate. Domestic manufacturing has been contracting since November, according to data from the Supply Management Institute.
“A variety of manufacturing surveys have been weak in recent months and the Empire State survey suggests that this weakness continued, or perhaps intensified, earlier this year,” said Daniel Silver, an economist at JPMorgan in New York.
The New York Fed’s Empire State Index of Current Business Conditions plunged to -32.9 this month from -11.2 in December. That was the lowest level since May 2020 and the fifth worst reading in the survey’s history. Economists polled by Reuters had forecast the index at -9.0.
A reading below zero indicates that New York’s manufacturing sector is contracting. Forty-four percent of respondents in the survey conducted between January. 3 and jan 10 reported that conditions had worsened, while only 11% said they had improved.
A gauge of new orders fell 27.5 points to -31.1. The shipments index fell 27.7 points to -22.4. Backorders are also running low, while inventories are constantly rising.
Higher borrowing costs weigh on demand for goods, which are mostly bought on credit. Spending is also returning to services. The previous appreciation of the dollar and the decrease in global demand are also affecting the manufacturing industry, which represents 11.3% of the US economy.
Last year, the Federal Reserve raised its benchmark rate by 425 basis points from near zero to a range of 4.25% to 4.50%, the highest level since late 2007. In December, the US central bank The US projected at least an additional 75 basis points increase in borrowing costs. at the end of 2023.
With orders collapsing and the unfinished work pipeline slowing, job growth in the region has stalled this month, with a measure of the number of employees falling 11.2 points to 2.8, the lowest level. low in more than two years. Factories also reduced the working hours of workers.
“Manufacturing conditions in the US are deteriorating and the worst is likely to come,” said Gurleen Chadha, a US economist at Oxford Economics.
However, there was encouraging news in the fight against inflation. A measure of the prices paid by factories for inputs fell 17.5 points to 33.0. Manufacturers are also not asking for higher prices for products, with a price received gauge falling 6.4 points to 18.8.
This aligns with recent data showing that inflationary pressures and expectations are easing, and strengthens expectations that the Federal Reserve could further reduce the size of its rate hikes next month.
Manufacturers in the region expected a modest improvement in conditions over the next six months. The survey’s future business conditions index rose to 8.0 from a reading of 6.3 in December. New orders and shipments were expected to increase, while employment was expected to increase modestly.
Reporting by Lucía Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
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