Manufacturing in the New York region unexpectedly contracted in November for the first time in more than a year, a warning sign the industry that led the economy out of the recession may again be cooling.
The Federal Reserve Bank of New York’s general economic index fell to minus 11.1 from 15.7 in October. Readings less than zero signal contractions in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. Economists forecast the measure would fall to 14 this month, according to the median projection in a Bloomberg News survey.
Continued growth in export demand and in business investment may not be enough to overcome the end of stockpile rebuilding and may lead to slower factory expansion in coming months. Measures of new orders, shipments and employment weakened in today’s report.
“Although the manufacturing sector of the economy on balance continues to expand, the expansion is slowing,” Hugh Johnson, chief investment officer at Hugh Johnson Advisors LLC in Albany, New York, said before the report. “Spending is not strong enough, so there’s not a strong need for manufacturers to increase production.”
Empire State Gauge
The median of 52 forecasts in a Bloomberg News survey projected the index would decrease to 14 this month. Estimates ranged from 7.5 to 20.
Today’s reading was the lowest since April 2009 and the first contraction since July 2009.
The Empire State gauge of new factory orders fell to minus 24.4 from 12.9 last month. A measure of shipments fell to minus 6.1 from 19.4. The index of inventories rose to zero from minus 11.7.
The employment measure decreased to 9.1 this month, from 21.7.
Manufacturers nationally have added 135,000 workers to their payrolls since the start of the year, according to Labor Department data. In October, factory payrolls fell 7,000, the third consecutive decline, while the jobless rate held at 9.6 percent.
Today’s report showed an index of prices paid fell to 22.1 from 30 in October, while prices received decreased to minus 2.6 from 8.3.
Factory executives in the New York Fed’s district were more optimistic about the future. The gauge measuring the outlook six months from now rose to 54.6 from 40.
Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management figures on U.S. manufacturing during the month. The Philadelphia Fed is scheduled to release its gauge on Nov. 18 and economists expect it rose to 5, the highest reading since July. The ISM data will be released Dec. 1.
Manufacturing makes up 11 percent of the U.S. economy. Reports for October signaled factory activity was regaining momentum after slowing in the middle of the year.
Central bankers, who earlier this month announced a program to buy an additional $600 billion in Treasury securities, are concerned economic growth is not strong enough to reduce an unemployment rate close to 10 percent. At the same time, inflation remains below the Fed’s longer-term projections.
Fed Chairman Ben S. Bernanke said in a speech to students on Nov. 5 that the new asset purchases will avert a decline in inflation and spur the U.S. recovery. It has the goal of reducing borrowing costs, adding stimulus and, “we hope, creating a faster recovery and an inflation rate consistent with long-run stability.”
Overseas demand is helping support factories. Exports rose 0.3 percent in September to the highest level in two years, according to Commerce Department data released Nov. 10.
General Electric Co. Chief Executive Officer Jeffrey Immelt last week appointed Vice Chairman John Rice to accelerate a push to bolster exports and expand partnerships in countries like China and India that are modernizing infrastructure to foster faster economic growth.
“The growth in the next decade or decades that’s going to take place will be quite robust in places like China and India,” Immelt said Nov. 9 in Beijing. GE is based in Fairfield, Connecticut.
Businesses also are responding to increased exports and to some pickup in domestic demand by replacing aging equipment and bringing more parts of their plants online.
Spending on equipment and software climbed at a 12 percent annual pace from July through September, according to Commerce Department figures released last month. A report on factory orders Nov. 3 suggests that figure may be revised up, as shipments on durable goods for September were revised up to 1 percent, from the previously reported 0.4 percent gain.
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