The numbers: The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, tumbled 21.7 points to negative 32.9 in January, the regional Fed bank said Tuesday.
This is the lowest level since the worst of the pandemic in May 2020 and among the lowest levels in the survey’s history, the regional Fed bank said.
Economists had expected a reading of negative 7, according to a survey by The Wall Street Journal.
Any reading below zero indicates contraction.
Key details: The new orders index fell 27.5 points to negative 31.1 in January. Shipments fell 27.7 points to negative 22.4.
The indexes for prices paid and prices received moved lower.
The employment gauges were also weak.
Firms expect little improvement in coming months, with the futures index at 8.
Big picture: The Federal Reserve’s steady increase in interest rates is having a slowing impact on capital spending as firms are scaling back investment, economists said. Demand for goods is also slowing after two strong years on the weak global economy. Added to the mix is the strong dollar which makes U.S. exports more expensive.
The market pays attention to the Empire State index because it is seen as a early read on the national ISM manufacturing index to be released early next month.
The ISM factory index contracted in December for the second straight month, falling to 48.4% from 49% in the prior month.
Looking ahead: “Manufacturing conditions in the U.S. are deteriorating and the worst is likely ahead,” said Gurleen Chadha, economist at Oxford Economics.
Market reaction: U.S. stocks
DJIA,
SPX,
opened lower on Tuesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
retreated to 3.51% after reaching 3.57% in early morning trading.