Empire State Manufacturing Index Stunning Drop to -43.7, New Orders -49.4


Nearly half of the New York region manufacturers reported a decline in new orders. Did a recession just start (or about to) as everyone gave up on the idea?

I don’t often comment on the Fed regional reports. The ISM and PMI national reports are sufficient. But this report, on the heels of a terrible report in December as well, merits a look.

Please consider the New York Fed Empire State Manufacturing Report for January 2024.

Business activity dropped sharply in New York State, according to firms responding to the January 2024 Empire State Manufacturing Survey. The headline general business conditions index fell twenty-nine points to -43.7, its lowest reading since May 2020. New orders and shipments also posted sharp declines. Unfilled orders continued to shrink significantly, and delivery times continued to shorten. Inventories edged lower. Employment and the average workweek declined modestly. The pace of input price increases picked up somewhat, while the pace of selling price increases was little changed. While firms expect conditions to improve over the next six months, optimism remained subdued.

Empire State Key Points

After falling twenty-four points last month, the general business conditions index shed another twenty-nine points, coming in at -43.7, its lowest level since May 2020.

The new orders index fell thirty-eight points to -49.4

The shipments index fell twenty-five points to -31.3, pointing to a large decline in orders and shipments.

The unfilled orders index held steady at -24.2, a sign that unfilled orders continued to fall significantly.

The inventories index came in at -7.4, suggesting that inventories shrank modestly, and the delivery times index remained below zero at -8.4, indicating shorter delivery times.

The index for number of employees was little changed at -6.9, and the average workweek index came in at -6.1, pointing to a modest decrease in employment levels and hours worked.

The prices paid index climbed seven points to 23.2, signaling a small pickup in input price increases, while the prices received index held steady at 9.5, a sign that selling price increases remained modest.

Forward Looking Indicators

The index for future business conditions climbing seven points to 18.8.

The capital spending index increased ten points to 13.7.

Most of the time I ignore the forward indicators. The chart shows they are nearly always optimistic no matter how you shift the chart.

If anything, the forward indicators are contrarian signals.

Note that expectations near zero tend to mark bottoms. What’s noticeable here is quite a bit of optimism (+18.8) for no apparent reason.

The report says “capital spending points to some improvement in investment plans.” I suggest it points to too much optimism.

What’s Happening?

I did not comment on the plunge last month. It could have been an outlier. But two consecutive plunges merited a closer look.

And I will also look at the Philadelphia Fed report coming up next.

Manufacturing Whiplash

Please note that after manufacturers geared up for EVs, Only 6 Percent in the US want an EV for their Next Vehicle.

And the last jobs report was a stunner.

Employment Down 683,000 Job Revisions -71,000

Full time employment declined by over 1.5 million in December. Revisions were hugely negative again.

Payroll and Employment Data from the BLS, chart by Mish

On January 5, I noted Jobs Up 216,000 But Employment Down 683,000 Job Revisions -71,000

It would not at all be surprising to see recession kick in after everyone gave up on the idea in favor of the soft landing thesis.



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