Manufacturing in New York Area Unexpectedly Shrank in August

Manufacturing in the New York area unexpectedly contracted in August for the first time in 10 months, indicating U.S. factories are burdened by the global economic slowdown.

The Federal Reserve Bank of New York’s general economic index fell to minus 5.9 this month from 7.4 in July. The median estimate in a Bloomberg survey of economists was 7.0. Readings less than zero signal contraction in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.

A slowdown in demand from consumers in the first half of the year, limited capital spending and a build-up in inventories gives factories little reason to boost production. Orders for the region’s manufacturers fell to the lowest level in almost a year, showing the industry that spurred the recovery from recession is facing a bigger hurdle from a weaker global economy.

“The outlook is not particularly favorable,” Millan Mulraine, a senior U.S. strategist at TD Securities Inc. in New York, said before the report. “Slowing global growth momentum will certainly eat into the global demand for U.S. exports and manufacturing in particular.”

Stock-index futures held losses after the figures, with the contract on the Standard & Poor’s 500 Index falling 0.2 percent to 1,398.4 at 8:32 a.m. in New York.

Estimates in the Bloomberg survey of 56 economists ranged from minus 2 to 10.

The Empire State gauge of new orders dropped to minus 5.5 in August from minus 2.7 the prior month, while the shipments measure fell to 4.1 from 10.3.

Factory Inventories

The measure of inventories dropped to minus 8.2 from zero in the prior period. Inventories in the U.S. rose in June at the slowest pace in nine months as a slump in sales gave companies little incentive to keep more goods on hand, the Commerce Department said yesterday. A slump in demand at the same time pushed up the inventory-to-sales ratio to 1.29 months, the highest since February 2010, the agency’s report showed.

The Fed’s index of factory employment decreased to 16.5 in July from 18.5. The unemployment rate climbed to 8.3 percent in July, the same rate as January.

The index of prices paid climbed to 16.5 from 7.4 in July.

Factory executives in the New York Fed’s district were less upbeat about the future. A measure of business conditions during the next six months dropped in August to 15.2 from 20.2 the month earlier.

Other Measures

Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management’s report on U.S. manufacturing. The Philadelphia Fed’s gauge, to be released tomorrow, improved to minus 5 in August from minus 12.9, according to the median estimate in a Bloomberg survey. The national ISM factory data will be released on Sept. 4.

Manufacturing makes up 12 percent of the U.S. economy and about 6 percent of the New York economy.

Deere & Co., the largest maker of farm equipment, posted fiscal third-quarter profit that trailed analysts’ estimates and cut its full-year earnings forecast after global demand slowed.

Net income climbed to $788 million, or $1.98 a share, in the three months ended July 31 from $712.3 million, or $1.69, a year ago, Moline, Illinois-based Deere said today in a statement. That missed the $2.32 average of 17 estimates compiled by Bloomberg. Equipment sales rose 16 percent from a year ago, compared with the 25 percent increase Deere forecast in May.

“Sales fell short of our expectations due to weakening in certain international markets and short-term manufacturing inefficiencies resulting from the introduction of a record number of new products,” Chairman and Chief Executive Officer Sam Allen said in the statement.

To contact the reporter on this story: Caroline Fairchild in Washington at cfairchild2@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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