New York Fed's Empire State Index Drops in August

The New York Fed's Empire State business conditions index, which measures manufacturing activity in the state, experienced a significant decline in August. It fell 20.1 points to reach a negative 19 reading, marking the first negative reading since May. This unexpected drop caught economists off guard, as they had anticipated a negative 1.4 reading according to a survey conducted by the Wall Street Journal. A reading below zero indicates contraction in activity.

Key Details

Several key indicators witnessed sharp drops in August. The index for new orders plummeted by 23.2 points to reach a negative 19.9 reading. Similarly, the shipments index experienced a steep decline of 25.7 points, ending up at a negative 12.3 reading.

Although price indicators saw an increase during the month, they remained at relatively low levels. Furthermore, the average workweek experienced a significant drop to reach a negative 10.7 reading.

However, it is worth noting that a measure of expectations for the next six months saw a positive change. It rose by 5.6 points to reach 19.9 in August, marking its highest level in over a year. Additionally, there was an improvement in capital spending plans.

Big Picture

This year has been marked by volatility in the headline index, with it dropping below negative 24 on three separate occasions before recovering. After reaching a reading of negative 31.8 in May, the index managed to bounce back.

The factory sector has been adversely affected by tighter lending standards, increased borrowing costs, and a decline in business demand.

Market Reaction

In response to this news, stocks (DJIA SPX) were projected to open lower on Tuesday. Additionally, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) rose to 4.23%, representing the highest rate of the year.