Blue State Manufacturing Sees Biggest Plunge Since Pandemic Lockdowns

The index for New York state’s general business conditions fell by 29 points to -43.7 for January, with a negative number indicating a contraction, declining to the lowest point since May 2020 when the state was struggling with the COVID-19 pandemic, according to a new survey from the Federal Reserve of New York.

Accompanying the decline and contraction in general business conditions, shipments fell 25 index points, the number of unfilled orders remained high at -24.2 index points and the amount of inventory held shrank to -7.4 index points, according to the Empire State Manufacturing Survey conducted between Jan. 3 and 10. Despite poor current conditions, optimism about future activity levels by businesses increased, with the index rising 7 points but still remaining relatively low at 18.8 points, indicating that businesses expect an economic expansion in the coming months.

“New York manufacturing activity fell sharply in January following a significant decline in December,” Richard Deitz, economic research advisor at the New York Fed, said in the report. “While the survey’s headline index has fluctuated in recent months, this outsized drop suggests January was a difficult month for New York manufacturers, with employment and hours worked also contracting.”

Both the index for the number of employees and the index for the number of hours worked in a week fell moderately, declining to -6.9 and 6.1 points, respectively, according to the survey. Producer prices rose slightly in January, to 23.2 index points, without incurring a similar gain in selling prices.

Excluding the COVID-19 pandemic, general business conditions are the lowest they have been since the survey began in 2001, with the next lowest point being -33.7 index points in March 2009 in the midst of the Great Recession, according to the survey. The index for general business conditions also underperformed expectations substantially, with economists expecting an increase to 18.8 points in January.

Businesses are feeling some optimism over the expectations that credit conditions will loosen in 2024 following cuts to the federal funds rate by the Federal Reserve. The Fed has set its rate to a range of 5.25% and 5.50% to combat high inflation but projected that rates will be at 4.6% by the end of the year.