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First Cut: Coronavirus impacts hit New York manufacturing index hard

The New York Fed’s manufacturing general business conditions index was slammed by impacts related to the spread of the coronavirus and fell to -21.5 in March from 12.9 in February. This was the lowest since -33.7 in March 2009. The index for future conditions came to a near-halt at 1.2 in March from 22.9 in February. The indexes are a measure of sentiment and the dramatic downturn probably overstates the case. However, that should not disguise what the subindexes are saying in terms of a rapid and significant reversal of the mildly improved conditions in January and February.

The New York Fed will release a special supplemental survey report on initial effects of coronavirus at 8:30 ET on Tuesday, March 17.

The index for new orders dropped to -9.3 in February after 22.1 i n February and was the softest since -9.7 in June 2019 when fraught trade negotiations threatened trade with China and the first evidence of overall slower growth in the global economy emerged. Order backlogs were down to 1.4 in March from 4.5 February. Any cushion in activity from unfilled orders is wearing thin quickly.

Shipments fell into contraction at -1.7 in March after 18.9 in February and was the first negative since -0.7 in October 2017.

Delivery times widened a bit to 2.2 in March after 8.3 in February and suggested that even with some challenges along the supply chain lengthening for some goods, realistically there is little to impede movement. Inventories expanded for a second month in a row at 5.8 in March after 12.9 in February. Businesses are going to be very careful about excess on the shelves but also will restock items that might be in short supply.

The index for employment declined to -1.5 in March after 6.6 in February. For most industries, hiring is going to be on hiatus until the fluid situation has settled and payroll needs can be better assessed. The average workweek contracted to -10.6 in March after -1 in February. This was the lowest since -17.4 in December 2015. Factories are limiting production to only the essentials.

The index for prices paid was little changed at 24.5 in March after 25.0.  While energy prices continued to decline in March, prices for other commodities in short supply were up. The index for prices received moderated to 10.1 in March after 16.7 in February, indicating that pricing power was limited.

The New York-ISM equivalent index fell to 49.6 in March after rising to 56.9 in February. This has a decent correlation to the ISM Manufacturing Index (0.728) and does point to a return to contraction for the national sector. However, this is already widely anticipated as the disruptions associated with the spread of COVID-19 ripple through the US economy.


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