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First Cut: January New York Fed Empire State Survey off to a slow start

The New York Fed’s Empire State Manufacturing Survey put the general business conditions index at 3.9 in January, another substantial decrease in the pace of growth after the drop to 11.5 in December from 21.4 in November. The reading was the lowest since 3.4 in May 2017. It suggests that while modest expansion in the District factory sector continues, the hectic pace of the prior two years can no longer be sustained in the face of slower global growth and domestic fiscal uncertainties.

The report included annual revisions.

The index is a measure of sentiment about conditions, not computed from components. However, it reflects the sharp decline in the pace of new orders (3.5 in January vs 13.4 in December), further contraction in order backlogs (-7.6 vs -5.1), the first negative reading for delivery times (-2.1 vs 3.2) since -2.3 in November 2017, and a dip in the pace of shipments (17.9 vs 20.3) for a second month in a row. Inventories were lower (-7.6 vs 71.) and will probably be subject to renewed caution going forward.

The index for employment was at 7.4 in January after 17.5 in December and was the lowest since 5.7 in January 2018. The workweek was essentially unchanged at 6.8 in January from 6.7 in the prior month. The winter months are typically slower for new hiring, but this may be the first indication that demand for new workers has eased off.

The prices paid index fell for a second month in a row to 35.9 in January from 39.7 in December and 44.5 in November. Further drops in energy commodity prices are removing upward pressure. However, prices received were about on trend at 13.1 in January after 12.8 in December and 13.1 in November, indicating that businesses still had modest pricing power.


The index for future conditions also declined to 17.8 in January from 30.6 in December and was the lowest since 14.5 in February 2016. This was another strong hint that the factory sector has lost its upward momentum and could plateau to a level of modest growth.

The New York Fed equivalent index to the ISM Manufacturing Index fell sharply to 51.9 in January from 56.2 in December. The computation has one of the weaker correlations to the ISM number (0.745) compared to Philadelphia (0.846) or Richmond (0.842), but it cannot be disregarded as a signal that manufacturing at the national level will start 2019 on a softer note.

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