The general business conditions index in the New York Fed Empire State survey of manufacturing took another wild turn and rose to minus 2.4 in February after plunging to minus 43.7 in January. The February reading is above the consensus of minus 12.5 in the Econoday survey of forecasters. It can be difficult to interpret the index which has been volatile for over a year. The underlying trend appears to be one where the region's factory sector remains in modest contraction. The future conditions index is up to 21.5 in February after 18.8 in January and has remained broadly consistent with an outlook for tempered expansion in the near future.

The detail indexes point to some improvement in conditions but point to continued sluggishness in activity. The new orders index is up to minus 6.3 in February after minus 49.4 in January and has been negative for five months. The unfilled orders index is at minus 9.6 in February after minus 24.2 in January and has not seen a positive reading since May 2022. The index for delivery times points to something closer to neutral at minus 3.2 in February after minus 8.4 in January and suggests that the supply chain is experiencing no delays. The inventories index is a bit slower at minus 9.6 in February after minus 9.6 in January as businesses avoid any accumulation of stocks.

The index for employment is near neutral at minus 0.2 in February after minus 6.9 in January and has been negative for four months. The factory sector is shedding fewer jobs although the index for the average workweek indicates that hours continue to shrink with a reading of minus 4.7 after minus 6.1.

More concerning for the region's factory sector is an uptick in price pressures. The prices paid index is 33.0 in February after 23.2 in January and the highest since 34.9 in May 2023. Businesses appear able to pass on some higher costs. The prices received index is up to 17.0 in February after 9.5 in January and the highest since 19.6 in September 2023.

After January's deep and completely unexpected plunge to minus 43.7, the Empire State index in February is expected to rebound to minus 12.5. January's result was the lowest since May 2020 during the pandemic shutdown.

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.