New York manufacturing growth slowed sharply in September while factory price pressures increased, giving Federal Reserve officials a mixed economic signal on the first day of their September policy meeting.
The Federal Reserve Bank of New York’s Empire State Manufacturing Survey showed the general business conditions index at 7.6 in September, down from 20.6 in August. The August reading had been the highest in more than four years, according to the New York Fed. The September result therefore represents a 13-point monthly decline, based on the two readings.
The drop does not mean New York manufacturing contracted. An index above zero means more manufacturers reported improving business conditions than worsening conditions. September’s 7.6 reading instead shows that growth remained positive but became much less widespread than it was in August.
The details also make the report more complicated than the headline decline alone suggests. New orders increased slightly, while shipments edged lower. The employment index remained positive at 10.6, and the average workweek index jumped 10 points to 17.0. At the same time, the indexes measuring prices manufacturers paid and prices they received both increased by five points, pointing to stronger price pressure inside the factory sector.
That combination matters because it is not a simple slowdown signal. Manufacturing activity lost considerable momentum from August, but firms were simultaneously reporting more widespread increases in their costs and selling prices.
Investozora analysis: for monetary policy, that is a less comfortable combination than weakening activity accompanied by easing prices. It suggests softer growth in this regional survey without the same clear cooling in price pressure. It does not, by itself, establish that national inflation is accelerating or determine what the Federal Reserve will do with interest rates.
The timing makes the survey especially relevant. The Federal Open Market Committee began its two-day meeting on September 15, the same day the manufacturing report was released. The Federal Reserve has scheduled its policy announcement for 2 p.m. Eastern time on September 16, followed by a press conference at 2:30 p.m. The September meeting also includes a new Summary of Economic Projections.
Readers following Investozora’s coverage of the September Fed decision should treat the Empire State report as one additional piece of evidence rather than a forecast of the FOMC decision. Policymakers assess a much broader set of national data on inflation, employment, spending and financial conditions.
The survey itself also needs to be read carefully. The New York Fed’s Empire State Manufacturing Survey methodology says the questionnaire is sent each month to the same pool of about 200 manufacturing executives across New York State, typically company presidents or chief executives, with about 100 responses normally received. The headline general business conditions index is a separate survey question rather than a weighted average of orders, employment, prices and the other components.
That distinction is important. A reading of 7.6 does not mean New York factory output grew 7.6%, nor does the 13-point monthly decline mean manufacturing production fell 13%. It is a diffusion index designed to show whether business conditions are improving or worsening across responding firms.
September also marks a notable reversal from August. On August 17, the New York Fed said its headline index had risen five points to 20.6, its strongest level in more than four years. A month later, much of that jump has been given back, although the index remains above zero.
For manufacturers, the most immediate concern may be the renewed rise in the survey’s price measures. Companies reporting higher input costs can face pressure on margins if they cannot pass those increases through to customers. A simultaneous increase in the prices-received index suggests that more firms were also raising their own selling prices, although the regional survey cannot show how much individual prices changed or establish what will happen to nationwide consumer inflation.
For investors, borrowers and savers, the report has a more indirect role. It can influence how markets assess economic momentum and inflation risk ahead of Federal Reserve decisions, but it does not mechanically change mortgage rates, savings yields, Treasury yields or consumer borrowing costs.
The next test comes quickly. The Fed will release its September policy decision and economic projections on September 16. After that, the New York Fed’s calendar schedules the next Empire State Manufacturing Survey for October 15.
For now, the September message is narrower but important: New York manufacturing continued to grow, but the expansion became substantially less broad than in August while reported price pressures moved higher. Whether that combination persists will depend on the next regional survey and, more importantly for the national outlook, the broader inflation, employment and production data that follow.
