Empire State manufacturing index slumps in January to lowest level in more than a year

BloombergAn employee uses a hydraulic press at the Justin Paul Inc. manufacturing facility inside the Brooklyn Navy Yard.

The numbers: The Empire State manufacturing index fell 7.6 points to 3.9 in January, the lowest reading in more than a year, the New York Federal Reserve said Tuesday. Economists had expected the index to inch up to 12, according to a survey by Econoday. The headline index has fallen a cumulative 18 points since November.

Any reading above zero indicates improving conditions.

What happened: The new-orders index and shipments gauges show the performance in these areas moved at a slower pace in January. The new-orders index fell 9.9 points to 3.5, and the shipments index fell 2.4 points to 17.9. Unfilled orders and inventory indexes also fell. The prices-paid index moved lower for the second month, indicating some slowing in input price increase. Firms were less optimistic about the six-month outlook.

The big picture: Business sentiment has slumped due to the trade fight with China and the partial government shutdown. Many business surveys have weakened lately. On its face, the report suggests another decline in the national ISM manufacturing survey, which tumbled to a two-year low in December.

What are they saying? "Overall, the message is that manufacturing activity is still rising, but only just, and we expect a substantial further weakening over the next few months," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He projected the Empire State would drop to about negative 10 over the next couple of months, which would be the lowest point since early 2016. "The current weakening is different; the trade war with China, coupled with the underlying slowing in China's growth, likely [are] responsible for most of the damage," he added.

Market reaction: Stocks opened higher Tuesday on hopes China will enact new stimulus measures. The Dow Jones Industrial Average DJIA, +0.59% was recently up over 120 points.

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