New York Area Factory Sentiment Rises to Three-Month High

Manufacturers in the New York region felt more optimistic in June even as orders, sales and employment dropped, indicating the area’s factories are looking beyond the current slowdown in growth.

The Federal Reserve Bank of New York’s general economic gauge, known as the Empire State index, climbed to 7.8 this month, the highest reading since March, from minus 1.4 in May. Readings of greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 51 economists called for a reading of zero.

The headline index is considered a sentiment reading because it’s derived separately from underlying measures of economic strength, which deteriorated last month. Businesses are putting off equipment purchases as they navigate the effects of this year’s across-the-board federal spending cuts, known as sequestration, and higher taxes. Manufacturers also have been hindered by a recession in Europe and a slowdown in China.

The drop in orders “is really quite disconcerting,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics in White Plains, New York, who forecast a gain in the index to 10. “With a bit luck there are reasonable grounds this weakness will turn around, but at the moment it looks pretty awful.”

Estimates in the Bloomberg survey of economists ranged from minus 5 to 10.

Shares Climb

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.8 percent to 1,631.2 at 9:07 a.m. in New York.

The Empire State gauge of new orders slumped to minus 6.7 in June, a five-month low, from minus 1.2 in May. A measure of shipments dropped to minus 11.8, the lowest in four years, from little changed. A measure of factory employment declined to zero, the weakest since January, from 5.7.

The index of prices paid climbed to 21 from 20.5, while prices received rose to 11.3, a one-year high, from 4.6.

Factory executives in the New York Fed region were about as optimistic about the future in June as in the prior month. The gauge measuring the outlook six months from now slipped to 25 from 25.5.

Auto and home sales are bright spots for manufacturing. Purchases at car dealerships climbed 1.8 percent in May, more than twice the 0.7 percent gain a month earlier, the Commerce Department reported last week.

Autos, Housing

“Things are looking up in the U.S. economy,” Greg Hayes, senior vice president and chief financial officer at United Technologies Corp., a Hartford, Connecticut-based supplier of materials to builders, said at a June 13 conference.

“Obviously, there is the impact of the sequester,” he said. “But frankly, the rest of the economy is growing so well. We don’t think it’s going to have the major impact on us.”

Economists monitor the New York report and Philadelphia Fed factory readings, due Thursday, for clues about the Institute for Supply Management figures on U.S. manufacturing. The national report is scheduled for release July 1.

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