New York Fed Factory Gauge Drops by Record to Two-Year Low
(Bloomberg) -- A Federal Reserve gauge of factories in New York state plunged in June by the most on record, adding to signs tariffs are weighing on manufacturers and the broader economy.
The New York Fed Empire State Manufacturing Survey’s main index fell by 26.4 points to minus 8.6, the lowest level since October 2016 and indicating more respondents said business conditions had worsened rather than improved. Almost all of the sub-indexes dropped, led by declines in new orders and unfilled orders. A Bloomberg survey of economists had forecast the measure would drop to 11 from 17.8.
The surprising weakness may spur more calls for Fed policy makers to lower benchmark interest rates at coming meetings, though economists don’t expect any move when officials gather this week in Washington. The index drop follows increased levies on Chinese products along with President Donald Trump’s threats -- later withdrawn -- to place tariffs on all Mexican goods.
New orders fell to a three-year low, while unfilled orders dropped to the lowest level since 2015. The employment index posted its first negative reading in two years, suggesting a pullback in the number of workers, while the average workweek shortened. The six-month outlook also deteriorated, but still remains about in line with its average in recent months.
“This looks terrible, but it won’t last,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note. He said the “awful” reading likely reflects the peak of Mexico tariff fear, which coincided with the survey response period.
The Empire State manufacturing index is the first of a series of regional Fed surveys due for release in the next two weeks, with economists projecting a decline in the Philadelphia Fed’s measure on Thursday. The regional gauges have generally been trending downward in the past year.
Surveys are sent out to about 200 manufacturing executives in New York state on the first of every month. Most responses are received by the 10th of each month, but responses are accepted until the 15th, according to the New York Fed. Trump threatened tariffs on Mexican goods on May 30 and said on June 7 that he would suspend the proposed levies.
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