Manufacturing Slump Persists in New York, but Downturn Shows Signs of Stabilizing

The April Empire State Manufacturing Survey painted a picture of a manufacturing sector in contraction, yet one that may be approaching a tentative floor. The headline general business conditions index improved to -8.1, marking a 12-point rebound from March’s reading of -20.2, though it remained firmly in negative territory. While the uptick suggests the pace of decline has moderated, the data underscore persistent headwinds, including weakening demand, rising input costs, and a grim outlook for the next six months.

The survey’s diffusion indexes, which subtract the percentage of respondents reporting declines from those noting increases and add 100, revealed a sector grappling with uneven pressures. New orders (-8.8) and shipments (-2.9) both declined, though at a slower rate than in March, indicating that demand remains tepid but not collapsing. Meanwhile, inventories expanded for the fifth consecutive month (index: 7.4), a potential red flag signaling overstocking as sales stagnate.

Labor Markets Under Strain
Employment barely budged (index: -2.6), but the average workweek contracted sharply (index: -9.1), suggesting companies are trimming hours rather than cutting payrolls—a sign of caution rather than outright pessimism. This dynamic may hint at a labor market that is slowing but not yet collapsing, which could provide a buffer against a sharper downturn.

Inflation Pressures Intensify
Input costs surged to their highest level since early 2023, with the prices paid index jumping to 50.8. Firms also reported rising selling prices (prices received index: 28.7), though at a slower clip, indicating some success in passing through costs. The disconnect between input and output prices could squeeze profit margins for manufacturers, a concern for equity investors.

Supply Chains Remain a Weak Spot
Supply chain bottlenecks worsened slightly, with the supply availability index dipping to -5.7, though delivery times stabilized. This suggests persistent but manageable disruptions, unlike the acute shortages seen in 2021–2022.

The Outlook: Darkening Clouds Ahead
Perhaps the most alarming data point came from the future expectations index, which plummeted to -7.4—the second-lowest reading in the survey’s 22-year history (only surpassed by the April 2020 pandemic low of -40.4). Firms anticipate further declines in new orders (-15.1) and shipments (-13.3) over the next six months, while expecting prices paid to climb to 62.0. This pessimism reflects concerns about weakening demand, higher costs, and supply chain risks.

Richard Deitz of the New York Fed noted that the current six-month outlook has deteriorated by 44 points since January, a sharp reversal from the modest optimism seen earlier this year. The survey’s three-month moving average for current conditions (-7.5) suggests the decline is not yet severe enough to trigger a broader recession but is consistent with a prolonged period of stagnation.

Implications for Investors
The data reinforce the view that manufacturing remains a drag on the U.S. economy, particularly in regions like New York where export-sensitive industries are concentrated. Investors should monitor whether the stabilization in the Empire State index is mirrored in broader surveys like the Philadelphia Fed’s Business Outlook Survey and the national ISM Manufacturing PMI.

While the near-term outlook is gloomy, there are subtle nuances. The moderation in contraction and the lack of layoffs suggest some resilience in underlying demand. However, the sharp rise in input costs and the bleak six-month outlook argue for caution in sectors reliant on manufacturing, such as industrials and commodities.

Conclusion
The April Empire State Manufacturing Survey underscores a sector in the early stages of a prolonged soft patch. While the pace of contraction has slowed, the data point to no near-term rebound. Investors should brace for further margin pressures at companies like industrial conglomerates and commodity producers, while keeping an eye on whether the Federal Reserve’s pause in rate hikes begins to ease cost burdens.

The survey’s historical context is instructive: after a brief recovery in late 2023 and early 2024, manufacturing has reentered contractionary territory, with the current index averaging -7.5 over the past three months. This pattern suggests the sector may remain a drag on growth for the foreseeable future. For now, the respite from deeper declines offers little comfort—a fragile stabilization in a fragile economy.