Manufacturing activity in NY rebounds by the most in 2 years

Manufacturing activity in NY rebounds by the most in 2 years

Business activity in New York state rebounded by the most in more than two years and returned to positive territory in July, following a steep drop the previous month amid ongoing trade tensions.

The headline general business conditions index of the NY Federal Reserve’s Empire state manufacturing survey rose 13 points — the biggest such gain since June 2017 — to 4.3 and topped economists’ expectations for a reading of 2, according to a Thomson Reuters survey.

That only partially recovered the record 26 point drop to minus 8.6 the previous month, which had marked both the lowest read as well as the first time it had fallen into negative territory since October 2016.

However, the report showed the new orders index rose but continued to be negative. The employment index, a labour market indicator, remained negative and fell to its lowest level in nearly 3 years.

“A partial correction was always likely after June’s record drop, triggered by the combination of the increase in tariffs on Chinese imports to 25% to 10%, and the week-long threat of tariffs on Mexican imports,” noted Ian Shepherdson, economist at Pantheon Macroeconomics.

Indeed, the report could signal signs of stabilisation in the factory sector after US manufacturing slid to its lowest level in more than 2½ years last month, raising concerns about the fallout from Washington’s multi-fronted trade battle. The uncertainty about the outcome of the US-China trade spat in particular has impacted business’s capital spending and hiring plans.

The data come as markets have largely priced in a rate cut by the Federal Reserve this month after Jay Powell earlier this month noted mounting risks to the US economic outlook in dovish testimony to Congress.

Investors will closely watch industrial production figures and the regional manufacturing survey from the Philadelphia Fed due later this week as they look for more signs of improvement in the industrial sector.

Mr Shepherdson said he thinks all the regional manufacturing surveys have likely bottomed out “but a serious recovery requires a deal on China and/or a hefty cyclical upswing in the Chinese economy; preferably both. We expect to have to wait until the fall”.

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