New York Manufacturing Index Slumped to Record Low in March
By Timothy R. Homan
March 16 (Bloomberg) -- Manufacturing in New York contracted in March at the fastest pace on record as orders, sales and inventories plunged.
The Federal Reserve Bank of New York’s general economic index dropped to minus 38.2, the lowest level since data began in 2001, from minus 34.7 in February, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.
The collapse in global trade, alongside a U.S. economy in its second year of recession, is causing manufacturers to pare back production as demand plummets. The subsequent payroll cuts have prompted the Obama administration to pledge to save or create 3.5 million jobs through tax cuts and more spending.
“The demand for manufactured products -- both domestically and globally -- has evaporated,” Steven Wood, president of Insight Economics LLC in Danville, California, said before the report. “This has forced factories to substantially reduce production and employment to keep inventories from ballooning.”
Economists forecast the Empire State index would climb to minus 30.8, according to the median of 45 estimates in a Bloomberg News survey. Projections ranged from minus 25 to minus 40.
The measure of new orders decreased to minus 44.8 and a gauge of shipments fell to minus 26.7, the lowest levels on record. The index of inventories decreased to minus 27, the weakest since August 2001, from minus 8.1.
The index of prices paid dropped to minus 14.6 from minus 13.8, and the gauge of prices received decreased to minus 23.6 from minus 20.7. A measure of employment improved to minus 38.2 from minus 39.1.
Factories in the state turned optimistic about the future. The gauge measuring the manufacturing outlook for six months climbed to 3.1, the first positive reading in three months, from minus 6.6.
Today’s report is one of the earlier measurements of regional manufacturing this month. The Philadelphia Fed report, due this week, may show manufacturing in the region also contracted in March, according to the Bloomberg survey median.
Another Fed report today is forecast to show industrial production nationwide decreased in February for a fourth straight month, according to the survey median. Manufacturing accounts for four-fifths of industrial production.
The U.S. trade deficit narrowed in January to $36 billion, the lowest level in six years, on tumbling American demand for everything from OPEC oil to Japanese automobiles, Commerce Department figures showed last week in Washington. American exports also decreased the lowest level since September 2006, as sales of automobiles and telecommunications equipment dropped, the government report showed.
The slowdown in global demand is hurting U.S. companies. United Technologies Corp., the maker of Otis elevators and Carrier air conditioners, said last week it plans to cut 11,600 jobs.
Louis Chenevert, chief executive officer of the Hartford, Connecticut-based company, said in a March 10 statement that “the economic recovery previously anticipated in the second half of 2009 now appears unlikely.”
Although 70% of our economic activity is service based, I would contend that the manufacturing base is far more important and it is continuing to contract. It is important because services do not add productive value in the same manner that manufacturing does.
The stock market believes it is looking past this data into the future. It’s the same thing they were doing last year and the year before that, etc. You can look past it all you want, but sooner or later the reality will strike home, and that’s already happening in spades.