Manufacturing in the New York region unexpectedly contracted in September at a faster pace, underscoring concerns a mainstay of the recovery is fading.
The Federal Reserve Bank of New York’s general economic index dropped to minus 8.8, the weakest reading since November, from minus 7.7 in August. Economists projected an increase to minus 4, based on the median of 54 forecasts in a Bloomberg News survey. Readings less than zero signal companies in the so- called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.
As a stagnant labor market and slumping stock values weaken household confidence and spending, manufacturers may slow assembly lines to prevent inventories from piling up. Factory payrolls fell last month for the first time since October, depriving the recovery of support while unemployment exceeds 9 percent.
“The number one issue for manufacturing is the underlying strength in consumer spending,” Paul Ballew, chief economist at Nationwide Mutual Insurance Co. in Columbus, Ohio, said before the report. “Without stronger consumer spending you’re not going to get a big spike in activity because durables and other products are just too important.”
Economists’ estimates ranged from 2 to minus 15. September marked the fourth consecutive month of contraction for the region’s factories, the longest stretch since the last recession.
Six of the report’s 10 gauges deteriorated this month. The Empire State gauge of new factory orders fell to minus 8 from minus 7.8 last month. A measure of shipments decreased to minus 12.9, the weakest reading since March 2009, from 3. Employment slumped to minus 5.4, the lowest level in two years, from 3.3.
Today’s report showed an index of prices paid climbed to 32.6 from 28.3 in August, while prices received increased to 8.7 from 2.2.
Factory executives in the New York Fed’s district regained some optimism about the future, the report showed. The gauge measuring the outlook six months from now climbed to 13 from a more than two-year low of 8.7.
Economists monitor the New York and Philadelphia Fed reports for clues about the Institute for Supply Management figures on U.S. manufacturing during the month. The Philadelphia Fed is scheduled to release its gauge at 10 a.m. today, which economists expect improved to minus 15 in September from minus 30.7. The national ISM factory data will be released on Oct. 3.
The two regional reports overstated the degree of the slowdown in manufacturing last month as the national figure showed factories continued to expand in August while the New York and Philadelphia measures slumped.
New York-based Colgate-Palmolive Co. is among companies planning to target business overseas.
“We are talking about a tale of two halves,” Ian Cook, Colgate’s chief executive officer, said at a Sept. 7 investor conference. “If you look at the developed markets, lower gross domestic product growth and getting lower. If you contrast that with the emerging markets you are seeing robust GDP growth, large populations, continued growth in the middle class.”
Even so, emerging markets are expanding less quickly than they did at the beginning of the year, which may curtail production of U.S.-made goods destined to head overseas. Brazil’s economic growth slowed last quarter the most since its 2009 recession. China’s economy grew at a slower pace from April to June than it did the prior quarter.
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