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Economy in Brief

U.S. Empire State Manufacturing Index Plummets in August; Lowest Since May '20
by Winnie Tapasanun  August 15, 2022

• Business activity falls in New York State, w/ the General Business Conditions Index down 42.4 pts. to -31.3.

• Widespread declines: new orders, shipments, unfilled orders, inventories, and employment.

• Inflation pressures ease somewhat, w/ prices paid down 8.8 pts. to 55.5.

• Following two straight m/m drops, the Future Business Conditions Index improves 8.3 pts. to a still-low 2.1.

The Empire State Manufacturing Index of General Business Conditions plunged to -31.3 in August, down from 11.1 in July and -1.2 in June, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. The Action Economics Forecast Survey had expected a positive reading of 5.0. The August negative result, down from 18.3 in August 2021, was the lowest level since May 2020's -48.5. The percentage of respondents reporting an increase in business conditions was 12.2% in August, down from 33.6% in July, while the percentage reporting a decrease was 43.6%, up from July's 22.6%. The latest survey was conducted between August 2 and August 9.

The headline index simply reflects the answer given to a single question on general business conditions. Haver Analytics constructs an ISM-adjusted Empire State diffusion index using methodology similar to the ISM series and information from five component indexes in the survey. The index fell to 45.9 in August from 57.3 in July and 56.7 last August, indicating activity contracted for the first time since August 2020 to the lowest level since May 2020's 40.5.

The new orders index dropped to -29.6 in August, the lowest reading since May 2020, from 6.2 in July and 14.8 in last August. A lessened 16.5% of respondents reported higher orders in August, down from 33.7% in July, while 46.1% reported lower orders, up from July's 27.5%. The shipments index decreased to -24.1 in August, the lowest reading since May 2020, from 25.3 in July and 4.4 last August. A lessened 15.4% of respondents reported higher shipments in August versus 39.9% in July, while an increased 39.5% reported lower shipments versus July's 14.5%.

The unfilled orders index dropped to -12.7 in August, the lowest level since August 2020, from -5.2 in July and 15.0 last August. The delivery times index fell to -0.9 in August from 8.7 in July, with a lessened 18.2% of respondents reporting higher delivery times and an increased 19.1% of respondents reporting lower delivery times. The inventories index dropped to 6.4 in August from 14.8 in July, registering the lowest reading since 6.2 last August.

The number of employees index decreased to 7.4 in August, the lowest level since April, from 18.0 in July and 12.8 last August. A lessened 22.9% of respondents reported increases in employment in August versus 29.5% in July, while an increased 15.4% reported lower employment versus July's 11.5%. The average workweek slid to -13.1 in August, the lowest reading since May 2020, from 4.3 in July and 8.9 last August.

Inflation pressures eased a bit this month. The prices paid index declined to 55.5 in August, the lowest reading since January 2021, from 64.3 in July and 76.1 last August; thus, suggesting a deceleration in input price increases. Nearly sixty-one percent of respondents reported higher prices paid in August, while 5.5% reported lower prices paid. The prices received index was at 32.7 in August, slightly up from 31.3 in July but down from 46.0 last August. About thirty-six percent of respondents reported higher prices received in August, while only 3.6% reported lower prices received.

The indexes of expected conditions in six months were mixed. The index for future business conditions rebounded to a still-low 2.1 in August after falling 20.2 points to -6.2 in July, indicating firms were not optimistic about their six-month outlook. Expectations for new orders (14.0) and shipments (18.7) improved but remained at low levels. Expectations for employment picked up to 30.0 in August from 22.5 in July. Expected delivery times declined to -12.7 from -9.6. Expectations for capital spending and technology spending eased slightly, to 12.7 and 10.0, respectively.

The Empire State data, reported by the Federal Reserve Bank of New York, reflect business conditions in the manufacturing sector in New York State. The headline measure is constructed from the answer to a single question on business conditions. The Empire State figures are diffusion indexes, which are calculated by subtracting the percent of respondents reporting declines from the percent reporting gains. The data are available in Haver's SURVEYS database. The ISM-adjusted headline index dates back to 2001. The Action Economics Forecasts can be found in Haver's AS1REPNA database.

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