Manufacturing in the New York region contracted for a fourth straight month in November as superstorm Sandy knocked out electrical power and limited activity.
The Federal Reserve Bank of New York’s general economic index was minus 5.2 this month after minus 6.2 in October. The median forecast of 55 economists in a Bloomberg survey called for minus 8. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut. Another Fed gauge of manufacturing around Philadelphia dropped to a four-month low.
Power outages and destruction in New Jersey and New York from Sandy placed a temporary burden on the region’s factories, which have been challenged by a recession in Europe and slower Asian economies. Companies have limited orders to factories as they pull back on equipment investment on concern lawmakers will fail to avoid the fiscal cliff -- a package of automatic tax increases and spending cuts set to take effect early next year.
“Capital expenditures look to be slowing in earnest,” Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York, said before the report. “In addition to the fiscal cliff and uncertainty, we’ve had a synchronous slowing in global manufacturing that’s affecting us here at home.”
Sandy also wreaked havoc on the job market. Applications for jobless benefits surged by 78,000 to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department said today in Washington. Several states said the increase was due to the storm that hit the Northeastern part of the U.S. in late October, a Labor Department spokesman said as the data were released to the press.
The Federal Reserve Bank of Philadelphia’s general business activity gauge declined in November to minus 10.7, the lowest level since July, from 5.7 a month earlier. Orders and sales decreased at faster rates, while factory employment in the region shrank for a fifth straight month.
Stocks rose as U.S. lawmakers prepared for budget talks. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,358.19 at 10:07 a.m. in New York.
All Fed survey respondents in the New York City area reported “some reduction in activity” because of Sandy. The loss of power and communications was the biggest reason cited by 70 percent of those businesses.
Bloomberg survey estimates of the factory index ranged from minus 16.2 to 2.
The Empire State measure of factory employment dropped to minus 14.6, the weakest since July 2009, from minus 1.1 in October.
The gauge of new orders increased to 3.1 from minus 9 in October. A measure of shipments rose to 14.6 from minus 6.4.
The index of prices paid eased to 14.6 from 17.2, while prices received rose to 5.6 from 4.3.
Factory executives in the New York Fed’s district were less optimistic about the future. The gauge measuring the outlook six months from now dropped to 12.9 from 19.4.
Manufacturing makes up about 12 percent of the U.S. economy and about 6 percent of New York’s.
Economists monitor the New York report and Philadelphia Fed factory readings, due later today, for clues about the Institute for Supply Management figures on U.S. manufacturing, set for release Dec. 3.
Caterpillar Inc. and General Electric Co. are among companies that have cut forecasts, a reminder that business investment will no longer bolster the world’s largest economy as it did earlier in the recovery. Wind turbine manufacturers Vestas Wind Systems AS and Seimens AG are laying off workers amid a slowdown in orders triggered by the fiscal cliff.
Railroads that once counted on a late-year surge in shipping volumes are seeing their peak season dissipate as retailers change their buying habits to stock only as much as they can sell. Retail sales in October fell for the first time in four months, Commerce Department figures showed yesterday.
Norfolk Southern Corp., based in Norfolk, Virginia, also reported weaker demand for coal and other raw materials in October even before Sandy made landfall, said Chief Financial Officer John Rathbone.
“We, like a lot of lot of companies, are concerned about the fiscal cliff and what it means to the economy,” Rathbone said at a Nov. 14 conference. “We’re hoping that Washington will see its way clear of making a rational decision on that.”
Weaker global economies are also weighing on manufacturers. The euro-area economy succumbed to a recession for the second time in four years as governments imposed tougher budget cuts and leaders struggled to contain the debt crisis that broke out in October 2009.
Gross domestic product in the 17-nation bloc slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said today.