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First Cut: New York Fed Empire State Survey suggests manufacturing is back in February

The New York Fed’s general business conditions index for manufacturing jumped to 12.9 in February from 4.8 in January. The index for future conditions moderated a bit to 22.9 in February from 23.6 in January, but it maintained its tone for expected modest-to-moderate expansion six months from now. I would be cautious in interpreting this as a decisive and sustained uptick in activity based on a single month. I do think it means that some firming is creeping back after the recession worries that marked the second half of 2019. However, there’s also a chance that the revival will ebb if the impacts of the COVID-19 outbreaks have a more lasting effect on supply chains and economic conditions.

The sharp rise in perceptions of current conditions in the District was probably related to the jump in the new orders index to 22.1 in February after 6.6 in January, indicating the fresh orders are lifting activity. The level was the highest since 23.7 in September 2017. The index for order backlogs rose to 4.5 after -2.7, and was its first positive since 2.1 in May 2019. Shipments rose along with quickly filled orders with the index at 18.9 after 8.6, and the highest since 24.9 in November 2018.

Delivery times widened to 8.3 in February after -2.7 in January, and was the first expansion since 0.7 in September 2019. Inventories grew sharply at 12.9 in February after -0.7 in January and was the fastest increase since 13.8 in January 2018. There may have been a burst of restocking to meet current and expected demand. This should be softer in the coming month.

The pace of employment slowed to 6.6 in February after 9.0 in February. Hiring never really slacked off in the past few months in order to capture qualified workers even if activity was less vigorous. It may be that factories are needing fewer workers at the moment, although a lack of qualified recruits may also be at play. However, the decrease in the index for the average workweek to -1.0 from 1.3 suggests more the former than the latter.

The index for prices paid fell to 25.0 in February from 31.5 in January along with lower costs for energy. Prices received picked up the pace to 16.7 in February after 14.4 in the prior month and was the highest since 18.1 in March 2019. Short supplies of some goods may be helping businesses raise prices.

The New York-ISM equivalent index for January rose to 56.9 after 52.1 in the prior month. The New York equivalent measure  — calculated from the five components most like the ISM index — has a decent correlation with the ISM Manufacturing Index. Again, I’d be cautious about interpreting this as a strong report and what that might imply for the national data. However, if other District Bank surveys show activity is flat-to-higher, it may be that the mild recession in manufacturing is indeed over.

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