The New York Federal Reserve said its Empire State Manufacturing Survey fell 42 points to -31.3 in August. That marks the second-largest monthly drop on record for this closely monitored measure of economic activity. The biggest drop was recorded in April 2020, when the economy was ravaged by the onset of the Covid-19 pandemic.
The August reading leaves the Empire State survey at its lowest point since May 2020 and one of its lowest since the survey launched in April 2002. Any reading below zero indicates a contraction.
“The overall business conditions index plummeted,” the report said. “New orders and shipments collapsed and unfulfilled orders fell.”
Economists had expected a more modest slowdown in the survey, which would still indicate expansion.
“Surprisingly terrible,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note Monday. “The momentum in the manufacturing sector has certainly slowed, but this is a collapse.”
However, Shepherdson said the magnitude of the deterioration is “barely believable” because it does not appear to be supported by other indicators.
It’s worth noting that New York manufacturing represents only a small portion of America’s wider manufacturing base. Investors and economists will be on the lookout for similar declines in other regional and national meters of production in the coming days and weeks.
“Today’s dismal news indicates that weakening domestic demand, high inflation and rising interest rates are hampering the sector’s progress,” Oren Klachkin, chief US economist at Oxford Economics, wrote in a note. “However, we would not distance ourselves too much from this report, as it probably paints too bleak a picture of production.”
According to the survey, collected between August 2 and August 9, only 12% of industry respondents reported that conditions were improving, while 44% said conditions were deteriorating.
Looking ahead, manufacturing executives expressed concern: the future business conditions index came in at just 2.1, indicating companies are not optimistic about the next six months. While the indices for future new orders and shipments are positive, they remained at “low levels.”
The good news is that the NY Fed said labor market indicators point to a small increase in employment and a decrease in prices paid.