Though workers in the U.S. manufacturing sector were more productive in the second quarter, as reported last week, data this week suggest declining business conditions for goods-producing firms, at least in New York State.
The Empire State Manufacturing Index for August showed a steep fall (42 points) in its general business conditions, to -31.3. (A negative number indicates contraction.) It was the largest decline in business conditions since May 2020, during the pandemic. (See chart, N.Y. Manufacturing Execs See Declining Activity.)
August marked the fifth time this year New York manufacturing executives signaled through the survey that general business conditions were worsening. In the other survey components, new orders and shipments plunged, and unfilled orders declined. Delivery times held steady for the first time in nearly two years, and business inventories increased slightly.
The index for number of employees showed growth, but the average work-week index fell to -13.1, down from July’s 4.3. That indicates a decline in hours worked, said the Federal Reserve Bank of New York, which conducts the monthly survey. The work-week result for August was consistent with second-quarter data from the Bureau of Labor Statistics that showed hours worked in the manufacturer sector dipping 1.1%.
Executives’ views on business conditions in the next six months looked slightly more positive but not by much. Forward-looking business conditions measured 2.1, up from July’s reading of -6.2, one of the few times since 2001 that the forward-looking index projected contraction. Executives expect new orders and shipments to increase some, but project the average employee work-week will contract in the next six months.
“We would not take too much away from this report as it likely paints an excessively downbeat picture of manufacturing,” Oren Klachkin, lead U.S. economist at Oxford Economics, commented, according to CNN Business.
Although the depth of manufacturing’s fall may be overstated, directionally it could be on target. According to the Fed’s Beige Book report, in July many Fed districts were still reporting production disruptions from supply chain problems and labor shortages. In addition, the New York Fed characterized overall economic growth last month as slowing “to a crawl.”
The N.Y. manufacturing data is at variance with the Fed’s national data on industrial production released Tuesday, which showed a 0.7% increase in July manufacturing output. Production was boosted by a large jump (6.6%) in the motor vehicles and parts sector.
After the industrial production data release, EY Parthenon chief economist Gregory Daco tweeted that “manufacturing activity is cooling, but retains some momentum; no indications of a massive pullback.”
Manufacturing has generally fared well during this period of high inflation. While cost increases for manufacturers have been larger than normal, only 5% of N.Y. manufacturers have not passed along those cost increases to customers this year, compared with 30% of services firms. That data appeared in a supplemental survey by the New York Fed in May. The supplemental survey also showed that more than two in five NY manufacturers had passed all or almost all of their cost increases along in the form of higher prices, compared with one-third of services firms.
Other manufacturing-related data releases this week include business inventories for June from the U.S. Census Bureau (Wednesday) and the Philadelphia Fed manufacturing index (Thursday).
The Empire State manufacturing survey data was collected from August 2 to August 9. The survey is sent monthly to the same pool of about 200 executives, and the response rate is typically 50%.
The state of New York ranks 7th in the U.S. for manufacturing employment. Some of the top goods made in the state include chemicals; computer and electronic products; food, beverages, and tobacco; primary metals; and machinery.