New York Manufacturing Index Rebounds But Still Indicates Sharp Contraction

By | May 15, 2020
New York Manufacturing Index Rebounds But Still Indicates Sharp Contraction

A report released by the New York Federal Reserve on Friday showed regional manufacturing activity continued to deteriorate significantly in the month of May, although the pace of contraction slowed considerably from the previous month.

The New York Fed said its general business conditions index jumped nearly thirty points to a negative 48.5 in May from a negative 78.2 in April.

While a negative reading indicates a continued contraction in regional manufacturing activity, the index came in well above economist estimates for a reading of negative 63.5.

The bigger than expected rebound by the headline index came as new orders and shipments continued to decline sharply, but not as steeply as in April.

The new orders surged up to a negative 42.4 in May from a negative 66.3 in April, while the shipments index spiked to a negative 39.0 from a negative 68.1.

The report also showed a substantial rebound by the number of employees index, which soared nearly 50 points to a negative 6.1 in May from a negative 55.3 in April.

On the inflation front, the prices received index inched up to a negative 7.4 in May from a negative 8.4 in April, but the prices paid index edged down to 4.1 from 5.8.

While current conditions remained extremely weak, the New York Fed said firms grew more optimistic that conditions would be better six months from now.

The index for future business conditions jumped to 29.1 in May from 7.0 in April, reflecting significant increases by the indexes for future new orders and future shipments.

“Manufacturers are holding onto their hopes of a turnaround, but we believe significant caution is warranted,” said a note from economists at Oxford Economics.

“The road to recovery will be long and uneven, with depressed demand, supply chain disruptions and elevated uncertainty hindering the rebound that we expect will gradually start to take shape in Q3 2020,” they added. “Solely lifting the lockdowns will not be enough to ensure a rebound in manufacturing activity.”

Next Thursday, the Philadelphia Federal Reserve is scheduled to release its report on regional manufacturing activity in the month of May.

The Philly Fed Index is expected to climb to a negative 45.0 in May from a negative 56.6 in April, with a negative reading indicating a contraction in regional manufacturing activity.