New York Fed June Manufacturing Index Falls to -8.7

New York Fed June Manufacturing Index Falls to -8.7

June 16 (Bloomberg) -- Manufacturing in New York shrank in June at a faster pace than forecast, led by declines in orders and sales.

The Federal Reserve Bank of New York's general economic index dropped to minus 8.7 from minus 3.2 a month earlier, the bank said today. Readings less than zero signal contraction.

Manufacturers are limiting production and investments as the persistent housing slump, surge in raw-material costs and slowdown in consumer spending hurt profits. Export demand has been one of the few bright spots for factories, preventing an even bigger slump.

``Unfortunately, further declines are likely in the months ahead,'' said Steven Wood, president of Insight Economics LLC in Danville, California. ``Demand was moribund even with robust exports.''

Economists forecast the Empire State index would rise to minus 2 this month, according to the median of 51 projections in a Bloomberg News survey. Estimates ranged from minus 10 to 7. The New York Fed began its Empire State gauge in 2001.

The central bank's New York branch initially issued two sets of data, each with different readings. The correct figures were later confirmed on its Web site.

The measure of new orders declined to minus 5.5 from minus 0.5 and shipments dropped to minus 6.5 from 4.6. A gauge of unfilled orders decreased to minus 10.5 from minus 4.4.

The index of inventories improved to minus 2.3 from minus 6.5.

Costs Jump

The report showed raw-material costs continue to hamper business. The index of prices paid eased to 66.3 from a record 69.6. The gauge of prices received increased to 26.7, the highest since January 27.4, from 15.2.

Eastman Kodak Co. said May 31 it is raising prices on film and paper by as much as 20 percent to cover higher costs for silver, aluminum, plastics and resin.

The measure of employment improved to 1.2 from 1.1 in May.

Companies were more upbeat about their prospects. The index measuring the outlook for six months from now increased to 32.2, the highest this year, from 23.9 in May. Area factories were optimistic the slump in orders and sales wouldn't persist.

Today's report provides one of the month's earliest pictures of the state of manufacturing. New York's economy often is considered less vulnerable to some of the domestic issues that have been affecting factories, including the auto slump, and more exposed to exports and financial services.

The region's general economic index averaged 17.2 in 2007.

Fed's Survey

Manufacturers in the New York region ``report that business activity remained sluggish in May, while cost pressures have been increasingly widespread,'' the Fed said last week in its regional economic survey, known as the Beige Book. Nationwide, economic growth was ``generally weak.''

The Beige Book is part of a package of analysis and data central bank policy makers will use as they decide the direction of interest rates at their meeting June 24-25. Fed officials cut the benchmark interest rate 2.25 percentage points over the first four months of this year and futures traders project no change at this month's meeting.

The Philadelphia Fed is scheduled to release its regional report on manufacturing on June 19. Economists forecast that measure would improve to minus 10 this month from minus 15.6 in May.

The jump in commodity prices is a boon to some companies. Pall Corp., the East Hills, New York-based maker of oil filters for refineries and drugmakers, said June 9 that profit may be higher than its previous forecast.

BLOOMBERG