Manufacturing in New York Region Contracts for Sixth Month

Manufacturing in the New York region contracted in January for the sixth straight month as the industry continued to face the effects of fiscal uncertainty in the U.S. and lackluster demand overseas.

The Federal Reserve Bank of New York’s general economic index fell to minus 7.8 from a revised minus 7.3 in December. The median forecast of 54 economists in a Bloomberg survey called for a reading of zero, which signals no change in conditions. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Weakness in manufacturing is holding back the economic expansion, damping the effects of advances in housing and household spending that are contributing to growth. On Jan. 1, Congress and President Barack Obama reached an agreement on taxes and spending after a protracted standoff that had caused some companies to hold back on investment. The pact calmed some so-called fiscal cliff worries even as it triggered a higher tax bill for American workers and left policy makers with more budget cutting to do.

“The manufacturing sector in general has been stuck in neutral for several months now,” said Thomas Simons, an economist with Jefferies Group Inc. in New York, who had forecast an improvement in the Empire index to minus 2. “It still hasn’t shown any progress. We’re still stuck in the mud here.”

Stock Futures

Stock-index futures trimmed earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in March fell 0.3 percent to 1,459.5 at 8:36 a.m. in New York as concern about talks to raise the government’s debt ceiling outweighed investor optimism over corporate earnings.

Bloomberg survey estimates for the January data ranged from minus 8 to 9.5.

The Empire State gauge of new orders decreased to minus 7.2 from minus 3.4 in December. A measure of shipments fell to minus 3.1 from 11.9 in December.

The index of prices paid rose to 22.6 from 16.1, while prices received jumped to 10.8 from 1.1

The measure of factory employment rose to minus 4.3 from minus 9.7.

Factory executives in the New York Fed region were more optimistic about the future. The gauge measuring the outlook six months from now climbed to 22.4 from 18.

U.S. Economy

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 Jan. 17, for clues about the Institute for Supply Management figures on U.S. manufacturing, set for release Feb. 1.

With U.S. policymakers at loggerheads at the end of last year over tax and spending policy, manufacturers were pursuing cost-cutting and remaining cautious about investment. Some of that uncertainty has been resolved, and overseas markets are showing signs of improvement, giving hope to companies such as Steinway Musical Instruments Inc., based in Waltham, Massachusetts.

The musical instrument manufacturer closed out 2012 with piano business results that failed to meet expectations. Now it’s ramping up piano production to meet demand in Europe, China and elsewhere, Chief Executive Officer Michael Sweeney said.

“Our more established markets of Europe and North America also provide significant growth prospects,” Sweeney said on a Jan. 2 call with analysts. “Some of this will come as the natural result of improved economic conditions, particularly an improved housing market.”

Labor Market

An improved labor market and rising wages had Americans buying clothes and electronics last month, while vehicle sales jumped as some Northeast residents sought replacements for autos damaged by superstorm Sandy. Cars and light trucks sold at a 15.3 million annual pace in December after a 15.5 million rate in November, the best two months since early 2008, according to Ward’s Automotive Group.

Still, “the overhang of uncertainty continues,” said S.D. Shibulal, chief executive officer of Infosys Ltd., a global information technology company in Bangalore, India. While the U.S. works through its spending issues, Europe continues to battle sovereign debt and emerging markets are slowing, he said on a Jan. 11 earnings call. Some Infosys clients are wary.

“It is clear that they believe that while the worst is over, some of these events can impact their business prospects in a manner difficult to predict,” Shibulal said. “Their ability in gauging the full impact of these events on their business is affecting their confidence in making spending decisions even though they have huge amounts of cash reserves.”

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