The general business conditions index in the New York Fed's Empire State survey of manufacturing is up 27.1 points to minus 5.8 in February after minus 32.9 in January. The reading is well above the consensus of minus 18.5 in an Econoday survey. The index shows the New York Fed district's factory sector remains in contraction for the third month in a row. However, it is less slow than in recent months. Notably, the index for future business conditions is up to 14.7 in February after 8.0 in January and is positive for the third straight month. While current manufacturing business conditions are weak, the near future looks brighter.

The conditions indexes are not calculated from components, but the details of the report suggest that the improvement is mainly due to improved new orders and shipments. The new orders index rose to minus 7.8 in February after minus 31.1 in January that appears to have been a one-month severe decline and not a trend. The unfilled orders index rose to minus 9.2 in February after minus 14.3 in January which shows orders on the books are being worked down more slowly. The shipments index is up to 0.1 after minus 22.4 in January, also indicating that deep slowing in January was confined to a single month.

For the first time since minus 3.5 in June 2020, the employment index was in negative territory at minus 6.6 in February after slowing to 2.8 in January. The long hiring trend is likely over, although it may be short if the economy avoids recession. Manufacturers are also unlikely to cut their workforces much in a soft patch while skilled labor is in short supply.

The delivery times index is down to minus 9.2 in February from 0.9 in January. The dip points to a supply chain that has little backlog to slow it down. The inventory index is up to 6.4 in February from 4.5 in the prior month. Inventories of finished goods will be watched closely to ensure that these do not pile up.

The index for prices paid in February rose to 45.0 after falling to 33.0 in January. This is probably related to higher energy costs that are starting to abate. The prices received index is up to 28.4 in February slipping to 18.8 in January. Manufacturers retain pricing power, although less than in 2022.

At a consensus minus 18.5, the Empire State index in February is expected to recover some of January's steep fall to minus 32.9.

The New York Fed conducts this monthly survey of manufacturers in New York State. Participants from across the state represent a variety of industries. On the first of each month, the same pool of roughly 200 manufacturing executives (usually the CEO or the president) is sent a questionnaire to report the change in an assortment of indicators from the previous month. Respondents also give their views about the likely direction of these same indicators six months ahead.

Investors track economic data like the Empire State Manufacturing Survey to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that won't generate inflationary pressures. The Empire Manufacturing Survey gives a detailed look at New York state's manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on the markets. Some of the Empire State Survey sub-indexes also provide insight on commodity prices and other clues on inflation. The Federal Reserve closely watches this report because when inflation signals are flashing, policymakers can reset the direction of interest rates. As a consequence, the bond market can be highly sensitive to this report. The equity market is also sensitive to this report because it is the first clue on the nation's manufacturing sector, reported in advance of the Philadelphia Fed's business outlook survey.