Key Takeaways:
New York factory activity slowed sharply in June, with the Empire State Manufacturing Index falling to its lowest level since early 2025.
New York state factory activity expanded at its slowest pace in more than a year in June, with the Empire State Manufacturing Index tumbling to 5.7 from 19.6 in May, well below the 13.9 consensus estimate from economists surveyed by MarketWatch.
"The magnitude of the decline suggests manufacturing momentum is cooling faster than anticipated, though the index remains in positive territory for a 14th consecutive month," said James Hyerczyk, a market analyst. "This adds to the case for the Federal Reserve to maintain its cautious stance."
The June reading was the lowest since February 2025 and marked the largest month-over-month drop since April 2020. The new orders index fell to 3.2 from 12.8, while the shipments gauge declined to 4.1 from 15.3. The employment index slipped to 2.9 from 5.1, suggesting hiring in the sector is losing steam.
The data arrives as the Federal Reserve's rate-setting committee begins its two-day meeting Tuesday, with markets pricing a 98.5% probability of rates remaining unchanged at 3.75%, according to the CME FedWatch tool. A sustained slowdown in regional manufacturing could reinforce the case for policymakers to hold rates steady through the third quarter, particularly as the broader economy shows mixed signals — the national ISM manufacturing PMI has contracted in four of the past six months.
The Empire State survey's deterioration mirrors weakness seen in other regional Fed surveys. The Philadelphia Fed's manufacturing index, due Thursday, is expected to improve to 11.4 from a contractionary -0.4 in May, though the New York print raises downside risk to that forecast. The broader economic calendar this week is heavy: retail sales data for May is due Wednesday alongside the Fed's rate decision and updated economic projections.
The sharp deceleration in factory activity comes against a backdrop of easing geopolitical tensions. The US and Iran reached a memorandum of understanding over the weekend to reopen the Strait of Hormuz, sending Brent crude oil down to $83.48 a barrel from peaks above $120 during the conflict. Lower energy costs could provide some relief to manufacturers facing elevated input prices, though the pass-through may take months to materialize.
April's price indices — CPI, PPI and PCE — all ran hotter than expected, complicating the inflation outlook. The Fed's preferred inflation gauge, core PCE, stood at 3.1% in April, well above the central bank's 2% target. For the manufacturing sector, the key question is whether the Empire State survey signals a broader trend or a one-month anomaly. The national ISM manufacturing PMI for May came in at 48.7, contracting for the fourth time in six months. A reading below 50 indicates contraction. The June ISM print is due July 1.
This article is for informational purposes only and does not constitute investment advice.
