The general business conditions index in the New York Fed's Empire State survey of manufacturing swings downward to minus 19.0 in August after two months narrowly in positive territory. The index is well below the consensus of minus 0.4 in the Econoday survey of forecasters. However, the index of future business conditions is up to 19.9 in August after 14.3 in in July and remains positive for the ninth straight month. If current conditions are perceived as more volatile and subject to uncertainty, steady expansion is expected to return in the near future.

The current business conditions index is a diffusion index and not calculated from components. It can present a different picture from the detail indexes in the report. But in August, this is not the case. The details point to softer activity and higher prices.

In particular, the index for new orders drops to minus 19.9 in August from 3.3 in July. Order backlogs continue to decrease, although at a slower pace at minus 6.8 in August from minus 8.8 in July. With few new orders coming in and backlogs taking up the slack, the New York district's manufacturing sector is seeing slow activity. The shipment index reflects this with a decline to minus 12.3 in August from 13.4 in July. The supply chain is a bit faster but near neutral at 1.9 in August from minus 6.9 in July.

The index for employment is a bit weaker at minus 1.4 in August after 4.7 in July but not in line with sparking big layoff intentions. The average workweek contracted to minus 10.7 in August from a nearly neutral 0.3 in July. Factories are not hiring in August and are offering fewer hours.

The index for prices paid is up sharply to 25.2 in August from 16.7 in July. This probably reflects recent increases in energy costs rather than widespread price hikes. The index for prices received is up to 12.6 in August from 3.9 in July and points to some pass-through of the higher costs.

August's Empire State index is expected to come in near breakeven at minus 0.4. This would follow July's plus 1.1 and June's plus 6.6 which, however modest, was the first back-to-back positive showing since late 2021.

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.