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First Cut: New York Fed manufacturing general business conditions showed ‘slight’ growth in October

Note: the New York Fed released the report one day early due to “technical difficulties”. The report was originally scheduled for 8:30 ET on Tuesday, October 15, but was published on the federal holiday on Monday.

The general business conditions index in the New York Fed’s Empire State Manufacturing Survey rose to 4.0 in October from 2.0 in September. The report said activity “grew slightly”. The future business conditions index was up to 17.1 in October form 13.7 in the prior month. The report said the outlook was “subdued”. Although the improvement was welcome, it really doesn’t change the underlying picture. The expansion in the District’s manufacturing sector has lost steam and is only growing marginally.

The general business conditions index is a measure of perceptions that is sometimes belied by the detail indexes. However, October’s readings look to be in line with regional sentiment.

The critical new orders index was unchanged at 3.5 in October from the prior month. It is a positive that orders were steady and continued to expand narrowly. However, the drop in the index for backlogs to -12.5 after -2.6 suggested that whatever business is coming in is being handled immediately and moved out the door quickly. There’s nothing in the pipeline to tide factories over in a slow month in the future. This is supported by the performance of the shipments index which rose to 13.0 after 5.8 in September.

Delivery times were shorter at -2.5 in October from 0.7 in September. A negative reading has been a rarity since the start of 2017. This was the second in the past five months and the prior two months were at or near neutral. Factories are waiting less time to get needed materials with less competition for inputs. Finished goods inventories slipped below neutral to -0.6 in October from 8.5 in September. The inventory index has been in contraction in four the of the past six months. The expansion in August and September was probably more due to stocking up in advance of anticipated increases in tariffs on goods from China that could drive costs higher and/or be in short supply.

The index for employment continued to expand at 7.6 in October, but at a slower pace than the 9.7 in September. The gains in the past two months come after three months of contraction. Factories still need skilled workers and businesses will hire them when they are available after the shortages of the past two years. The workweek expanded to 8.3 in October from 1.7 in September. As activity slows, factories may be more reliant on additional hours to address the business at hand rather than committing to possibly unneeded payrolls in the coming months.

The prices paid index slipped to 23.1 in October from 29.4 in September. The decline was probably in part on lower energy costs which have generally kept upward pressures low in recent months. Prices received continued to jog along at a low level at 6.3 in October after a brief upswing to 9.2 in September.

The New York-ISM equivalent index — calculated from the five components closest to the composition of the ISM Manufacturing Index — was at 52.1 in October, slightly softer than the 52.8 in September and little changed from the 52.0 in August. While the New York measure doesn’t have the best correlation with the ISM index, it is still a solid one. This hints that the October ISM Manufacturing Index may well continued along the sub-50 lines of the August and September reports when the data is released at 10:00 ET on Friday, November 1 at 10:00 ET.


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