The general business conditions index for July in the New York Fed Empire State Manufacturing Survey is down 5.5 points to 1.1 after 6.6 in June. The July reading is above the consensus of minus 3.0 in the Econoday survey of forecasters. This the first back-to-back positive for the index since November-December 2021. This suggests that some of the wild swings in the index are easing up and that manufacturers in the region perceive conditions as expansionary in the past two months, if only modestly. The index for future business conditions shows a slightly more moderate outlook at 14.3 in July after 18.9 in June, but still consistent with tempered expansion.

The headline index is a single diffusion index and not calculated from components. As such, it can tell a different story than the details. However, in July the details line up with the tone of the headline.

The index for new orders gained a little upward momentum at 3.3 in July after 3.1 in June. That the pace of new orders did not drop off is likely the main reason the composite business conditions index remains positive in July. The index for backlogs shows some slowing at minus 8.8 in July after minus 8.0 in the prior month. While orders are improved a bit, there is little in the pipeline to maintain activity should orders fall again. The index for shipments downshifts to 13.4 in July from 22.0 in June but is a more sustainable pace. The index for employment is up to 4.7 after a minus 3.6 in June and hints that manufacturers in the region are picking up skilled workers where they can. The workweek index is up to 0.3 in July after eight months of contraction. Inventories continued to contract at minus 10.8 in July after minus 6.0 in June.

The index for prices paid is down to 16.7 in July from 22.0 in June, and is its lowest since 16.0 in August 2020. The index for prices received is down to 3.9 in July from 9.0 in June, and at its lowest since minus 4.5 in July 2020. Manufacturers in the district are seeing the least upward price pressure in nearly two years, but they are also seeing little ability to impose price hikes.

Following June's plus 6.6, July's Empire State index is expected to fall back to minus 3.0. This index has been swinging wildly at the headline level though expectation readings for future improvement have been steady and positive.

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.