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First Cut: Conditions in manufacturing in New York Fed District worsen in April

The general business conditions index in the New York Fed’s Empire State Manufacturing Survey plunged again in April, reaching a series low of -78.2 after -21.5 in March. It is important to keep in mind that this is a measure of sentiment, not hard activity. However, the details in the report confirm that manufacturers have a reason for their deep gloom. Somewhat surprisingly, however, the index for conditions six months from now firmed to 7.0 in April after 1.2 in March. This suggested that there is hope for a fairly rapid recovery in the not too distant future.

The index for new orders plunged to -66.3 in April after -9.3 in March. There is nothing to compare this sort of rapid decline to in the New York data. The index for order backlogs contracted at -16.8 after 1.4 in the prior month, and indicated there is nothing in the pipeline to keep activity going.

Shipments also declined sharply with the index at -68.1 after -1.7 in March. Employment and the workweek also turned to deep contraction with the employment index down to -55.3 after -1.5 and the workweek down to -61.6 after -10.6.

The delivery times index widened to 11.0 in April from 2.2 in March, not because activity is building, but rather the reverse as goods and materials are not being produced and are unavailable and taking longer to obtain. The inventories index was down to -9.7 after 5.8 while manufacturers are keeping stocks on hand low out of choice and in some cases sheer necessity.

The index for prices paid dipped to 5.8 in April after 24.5 in March. It followed the rapid decline in energy costs that has met overproduction and low demand. Prices received reflected the lack of pricing power at present with the index at -8.4 after 10.1.

The New York-ISM equivalent index — calculated from the five components most like the ISM Manufacturing Index — pointed to steep decline in April at 31.2 after 49.6 in the prior month. The index has a decent correlation (0.728) with the ISM headline but it is only one region. Right now conditions across the US are highly uncertain and more data will be needed for a better picture.

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