By Geoffrey Smith
Investing.com -- A key gauge of U.S. manufacturing sent an alarm signal on Tuesday, highlighting a growing divergence between a relatively strong labor market and a stuttering real economy.
The Empire State manufacturing index, compiled by the New York Federal Reserve, plunged from -11.2 in December to -32.9, its lowest since the early days of the pandemic, as companies reported sharp drops in both new orders and shipments.
Analysts had expected a modest recovery to -8.7 ahead of time.
The Empire State survey doesn't reflect nationwide activity quite as accurately as the more representative Philadelphia Fed survey, which has suggested a more constant but less pronounced contraction over the last four months. Both survey represent a stark reality check to those who have interpreted a series of strong labor market reports as evidence that the U.S. can avoid a recession this year.
The New York Fed said its sub-index for future business conditions held steady at 8.0, suggesting that firms expect little improvement over the next six months.
Markets were unfazed by the report, partly due to the signs of easing inflationary pressures in the pipeline. The prices paid and prices received subindexes - which correlate loosely to nationwide data on producer price inflation, both extended the downward trend that they have been in since the second half of 2022. In current conditions, the prices paid index fell 6.4 points, but the prices received index fell 17.5 points, suggesting that the expansion of profit margins in 2021 and 2022, which was a large factor in driving consumer inflation to a 40-year high last year, is now reversing. The forward-looking indexes showed expectations for both input and output prices falling in parallel.