Commentary Directory

The Empire State Manufacturing Survey Business Conditions index jumped 20.9 pts to 1.9 in September as the measure of New York’s manufacturing activity continues the volatility seen since 2022. The New Orders and Shipments indexes both surged as well by about 25 pts each to 5.1 and 12.4 respectively. As activity has improved, manufacturing firms continue to draw down unfilled orders. The index has been negative for about a year and a half now, -5.2 in September, as new demand has been sluggish as rates have risen. A more troubling movement was noticed in the Prices Received index which bounced 7.0 pts to 19.6 which is around where it ended in the latter part of 2022. Not great news for inflation. Labor demand has definitely started to weaken. The Number of Employees index fell slightly further into the negative, down -1.3 pts to -2.7, reasserting the negative trend after the slight recovery in Q2. The forward-looking indicators suggest that firms are feeling more confident about conditions… but also expecting higher prices.

Better than expected activity and demand is good for growth but bad for inflation. The September edition of the Empire State Manufacturing Survey suggests that firms are maintaining their pricing power when it feels that demand is stable enough to support it. On the other hand, the volatility in activity and demand is keeping managers from feeling they can comfortable expand their workforces, and undoubtedly, they are looking to cut labor costs where they can now. However, if optimism is maintained for a substantial period, hiring demand can reverse.