The general business conditions index plunged to minus 43.7 in the January reading after minus 14.5 in December. The reading is far below the consensus of minus 4.7 in the Econoday survey of forecasters. While the index has been volatile and consistent with broadly soft conditions in recent months, the January reading is the lowest since minus 48.5 in May 2020 when the pandemic shutdowns were still impeding activity. If current conditions are viewed with gloom, the outlook for about six months from now is more positive. The future conditions index is up to 18.8 in January after 12.1 in December. While only modest growth is anticipated in the near future, it is nonetheless growth.

The diffusion index is not calculated from components and therefore can be at odds with the details of the report. However, January clearly has some worrisome developments. In particular, the drop in the new orders index to minus 49.4 in January from minus 11.3 in December is striking. It is the lowest since minus 78.2 in April 2020. Exceptionally weak new orders means further contraction in unfilled orders with that index at minus 24.2 in January after minus 24.0 in December. With falling new orders and little in the pipeline, the shipments index is down to minus 31.3 in January after minus 6.4 in December. The delivery times index shows delays are few and far between at minus 8.4 in January after minus 15.6 in December. The inventories index is at minus 7.4 in January after minus 5.2 in December and indicates businesses are avoiding any build up.

The employment index is negative for the third month in a row. It is slightly less negative at minus 6.9 in January after minus 8.4 in December but does not point to a pickup in hiring any time soon. The average workweek index is also down for the third straight month at minus 6.1 in January after minus 2.4 in December. Fewer hours worked is a natural consequence of the slower activity for the region.

The region also sees higher prices in January with the prices paid index up to 23.2 in January after 16.7 in December. The pace of increases is not huge but the uptick suggests that signs of improving inflation are stalling. The prices received index is down to 9.5 in January after 11.5 in December and points to a lack of ability to pass through increased costs.

January's Empire State index is expected to improve nearly 10 points to minus 4.7 after December's steep fall to minus 14.5 in a report that showed steep declines for both new and unfilled orders.

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.