The general business conditions index in the New York Fed's Empire State manufacturing survey takes a wild swing to minus 31.8 in May after a positive 10.8 in April and minus 24.6 in March. It is not unusual for this index to see-saw between softer and firmer readings, but it has been particularly erratic since the start of 2023. The underlying trend is consistent with contraction in general business conditions since mid-2022. However, the future business conditions index is up to 9.8 in May after 6.6 in April and 2.9 in March. The region's factory sector is expected to improve in the near future.

The general business conditions index is a diffusion index and so not constructed from components and more reflective of regional business sentiment.

Business sentiment is restrained by weakness in new orders where that index reverses to minus 28.0 in May after positive 25.1 in April. The index for order backlogs falls to minus 13.2 in May after a neutral 0.0 reading in April. The shipments index is down to minus 16.4 in May from positive 23.9 in April. The index for employment remains in contraction at minus 3.3 in May from minus 8.0 in the prior month with similar conditions for the average workweek at minus 3.5 after minus 6.4. The delivery times index is lower at minus 5.7 in May, down from neutral in April. The inventories index is weaker at minus 12.3 in May from positive 8.2 in April. Overall, activity is sharply lower in May from the prior month.

The index for prices paid remains consistent with more modest upward price pressures although it increases slightly to 24.9 in May from 33.0 in April, probably due to an uptick in energy prices. The prices received index is essentially unchanged at 23.6 in May from 23.7 in April and shows that businesses are still able to pass some cost increases on to customers.

The Empire State index in May is expected to fall back to minus 2.0 after April's 35-point surge into positive ground at 10.8.

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.