New York Area Manufacturing Unexpectedly Contracts

May 15 (Bloomberg) -- On "The Real Deal," Michael McKee reports on New York manufacturing data and what that may mean for the U.S. economy as a whole. He speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Manufacturing (EMPRGBCI) in the New York region unexpectedly shrank in May as factories received fewer orders and sales stagnated.

The Federal Reserve Bank of New York’s general economic index declined to minus 1.4 this month from 3.1 in April. Readings less than zero signal contraction in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey called for an increase to 4.

Less inventory building by companies and struggling global markets are restraining orders and slowing manufacturing, which accounts for about 12 percent of the economy. At the same time, sustained strength in housing and auto sales may help keep the industry from deteriorating further.

“Sales growth is less than inventory growth, and when you’re in that situation it tends to lead to flatness or declines in manufacturing,” Ken Mayland, president of Clearview Economics LLC in Pepper Pike, Ohio, said before the report. Mayland was the second-most accurate forecaster of the New York index in the past two years, according to data compiled by Bloomberg. “Manufacturing might see some regaining of momentum in the second half of the year.”

Estimates in the Bloomberg survey ranged from minus 2 to 8.5. Economists monitor the New York report and Philadelphia Fed factory reading, due tomorrow, for clues about the Institute for Supply Management figures on U.S. manufacturing. That report is set for release on June 3.

Photographer: Justin Ide/Bloomberg

Less inventory building by companies and struggling global arkets are restraining orders and slowing manufacturing, which accounts for about 12 percent of the economy. Close

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Photographer: Justin Ide/Bloomberg

Less inventory building by companies and struggling global arkets are restraining orders and slowing manufacturing, which accounts for about 12 percent of the economy.

Six-Month Outlook

Factory executives in the New York Fed region were also less optimistic about future activity. The gauge measuring the outlook six months from now dropped to 25.5 in May from 32 a month earlier.

The gauge of current new orders decreased to minus 1.2 in May from 2.2. A measure of shipments decreased to zero from 0.8 a month earlier.

The index of prices paid fell to 20.5 from 28.4 in April, while prices received decreased to 4.6 from 5.7.

The gauge for factory employment decreased to 5.7 from 6.8 in April. A report from the Labor Department on May 3 showed payrolls at the nation’s manufacturers were little changed in April.

Companies held inventories in check for a second month in March as sales fell by the most in nine months, a sign orders may increase as demand picks up, a report on May 13 showed. In April, retail sales unexpectedly rose 0.1 percent, reflecting broad-based gains that may give factories a boost.

Cooper Tire

American factories face limited growth in China and a recession in Europe. Cooper Tire & Rubber Co. (CTB) is among companies that said consumers were challenged by an increase in payroll taxes at the start of the year.

“Recovery in the U.S. has been limited and has likely been negatively impacted by the payroll tax increase, higher gasoline prices and delayed tax refunds, all of which constrain consumer spending,” said Roy V. Armes, Cooper Tire & Rubber Co.’s chief executive officer, in a May 9 earnings call.

At the same time, strength in the auto industry has helped support manufacturing. Cars and light trucks sold at an average 15.3 million annual rate in the first quarter, the strongest since the first three months of 2008, according to data from Ward’s Automotive Group. Purchases cooled to a 14.9 million annual pace in April.

To contact the reporter responsible for this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

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

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