The general business conditions index in the New York Fed's Empire State survey of manufacturing fell to minus 14.5 in December after 9.1 in November. The reading is well below the consensus of 3.7 in the Econoday survey of forecasters. The index reflects perceptions of current conditions for the region and has exhibited a pattern of weaker months alternating with stronger ones since the start of the year. The report noted that the average for 2023 is at minus 8.6. This is consistent with the broad contraction in new orders over the course of the year.

However, it is notable that the index for future business conditions rebounds to 12.1 in December after falling sharply to minus 0.9 in November. While the future index remains under the near-term peak of 26.3 in September, it does suggest that whatever drove the reading down in November has eased up considerably.

The general business conditions index is not calculated from component parts and the details of the report can tell a somewhat different story. This is not the case in December where signs of weakness are widespread. The orders index is at minus 11.3 and in contraction for the third month in a row. The unfilled orders index remains in deep contraction at minus 24.0 as order backlogs offer no support in keeping the region's manufacturers busy. The index for shipments turns negative at minus 6.4 in December after 10.0 in November.

The delivery times index is down to minus 15.6 in December, its lowest since minus 18.2 in January 2009 which was weather related and minus 19.1 in December 2001 after a period of recession. The inventories index is lower at minus 5.2 in December after a brief rise to 9.1 in November following six months of contraction.

Lower energy costs are likely behind the fall in the prices paid index to 16.7 in December after 22.2 in November. This matches the near-term low of 16.7 in July and is the lowest since 16.0 in August 2020. Businesses' ability to pass through increased costs is virtually unchanged in the past three months. The prices received index is at 11.5 in December after 11.1 in November and 11.7 in October.

December's Empire State index is expected to slow to 3.7 after November's nearly 14-point rise to 9.1 in a report, however, where both new orders and backlogs continued to contract.

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.