Plunge in NY Fed Manufacturing Index Shows Recession Monster Is Alive and Well
The sharp drop in the New York Federal Reserve’s Empire State business-conditions index in January triggered a wave of warnings.
Soon after this monthly survey data was released yesterday (Jan. 16), social media and beyond lit up, warning that this was a smoking gun for the US economy’s imminent descent into recession, assuming output hadn’t already turned negative.
But like most single-indicator releases, the crowd rushed to judgment and allowed the headlines du jour to overwhelm more thoughtful analysis.
The NY Fed Manufacturing Index, as it’s popularly known, is prized as an early read each month on the manufacturing sector.
The sight of this index dropping deep into negative terrain for January – the lowest reading since 2020, when the pandemic was raging – convinced some observers to warn that the jig is up and a US recession has arrived or is near.
Maybe, but it’s hard to make a high-confidence call based on one indicator, much less one regional manufacturing indicator that draws on survey data from manufacturing executives in the NY Fed’s district.
On that note, keep in mind that these same executives have become increasingly upbeat about the future (red line in the chart below).
In fact, the NY Fed Manufacturing data is reaffirming old news. The manufacturing sector of the US overall has been in a slump for more than a year.
The ISM Manufacturing Index in December marked the 14th straight month of contraction. A competing index reflects a similar condition.
“US manufacturers ended the year on a sour note,” says Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
The question is whether manufacturing carries the same weight for analyzing the US business cycle relative to years earlier.
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