Manufacturing in New York Fed Region Shrinks More Than Economists Forecast
Manufacturing in the New York region contracted in October at a faster pace than forecast, reflecting a lack of confidence in the U.S. recovery that failed to be confirmed by measures of orders and sales.
The Federal Reserve Bank of New York’s general economic index rose to minus 8.5 from minus 8.8 in September. Economists projected an improvement to minus 4, based on the median of 53 forecasts in a Bloomberg News survey. Readings less than zero signal companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.
The central bank’s measures of bookings and shipments climbed to the highest levels in five months, indicating the industry at the heart of the economic recovery may be regaining momentum. Growth in China and other emerging economies may continue to lift demand for U.S.-made cars and machinery, complementing a pickup in consumer spending.
“Consumer demand has held up much better than just about anyone could have expected and manufacturers should see orders improve over the near-term as a result,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report.
Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in December fell 0.1 percent to 1,217.7 at 8:32 a.m. in New York.
Economists’ estimates ranged from 1 to minus 11.3. October marked the fifth consecutive month of contraction for the region’s factories, the longest stretch since the last recession.
The headline index is based on a separate question and does not reflect changes in areas like orders and employment. For that reason, some economists consider it a measure of sentiment.
The Empire State gauge of current factory orders increased to 0.2 from minus 8 last month, ending a four-month contraction. A measure of shipments rose to 5.3 from minus 12.9. Employment improved to 3.4 from minus 5.4.
Today’s report showed an index of prices paid dropped to 22.5, the lowest reading since November, from 32.6 while prices received decreased to 4.5 from 8.7.
Factory executives in the New York Fed’s district became less optimistic about the future, the report showed. The gauge measuring the outlook six months from now dropped to 6.7, the lowest reading since February 2009, from 13.
PepsiCo Inc., the world’s largest snack-food maker, is among manufacturers that have been successful in passing on price increases to consumers. The Purchase, New York-based company last week reported a 4.1 percent rise in third-quarter profit, helped by price increases and sales of snacks in Latin America.
“Commodity inflation has ramped up as we moved into the second half of the year, as we expected, so some of the incremental pricing is simply offsetting the incremental inflation,” Chief Financial Officer Hugh Johnston told a conference call on Oct. 12.
Economists monitor the New York and Philadelphia Fed 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 Oct. 20. Economists forecast the index improved to minus 9.3 this month from minus 17.5. The national ISM factory data will be released on Nov. 1.
The latest economic data has helped allay concerns the economy is sliding back into a recession after growth in the first half of the year almost stalled. Retail sales rose 1.1 percent in September, the most in seven months, car sales climbed to a 13.04 million annual rate, the most since April, and the economy added 103,000 jobs, reports this month showed.
While exports in August were at the second-highest level on record, concerns of a European default and slower global growth may limit any further gains.
A strengthening in the U.S. dollar over the last couple months also threatens to make American-made goods less competitive in the global marketplace. From late July through early October, the dollar strengthened about 6.2 percent against a basket of currencies of major trading partners after falling 9.1 percent in the prior 12 months.
The International Monetary Fund last month lowered its forecast for growth in the euro area to 1.6 percent this year from a prior 2 percent forecast. Economic growth in Mexico, the third-largest U.S. trading partner, will be 3.8 percent, down from a prior 4.7 percent estimate.
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