The general business conditions index in the New York Fed's Empire State survey swings lower to minus 20.9 in March after minus 2.4 in February. The reading in March is well below the minus 8.0 in the Econoday survey of forecasters.

The general business conditions index has been exhibiting a pattern of see-sawing between softer and weaker readings for about the last two years. A two-month moving average of the general business conditions index is at minus 11.7 for March after minus 23.1 in February and minus 29.1 in January. It suggests some modest underlying improvement but still weak conditions for the region's manufacturing sector. The future conditions index is essentially unchanged at 21.6 in March after 21.5 in February and points to anticipation of modest expansion in the near future.

The business conditions indexes are diffusion indexes and reflect respondents' attitudes. These are not compiled from the detail indexes which can tell a different story. However, in March, the details back up the headline.

The new orders index softened to minus 17.2 in March after minus 6.3 in February. The index for order backlogs continues to contract at minus 10.9 in March after minus 9.6 in February. The index for shipments moves into contraction at minus 6.9 in March after a positive 2.8 in February. The delivery times index is running closer to neutral at minus 1.0 in March after minus 3.2 in the prior month. The inventory index shows faster reductions in manufacturers' stocks at minus 12.9 in March after minus 9.6 in February. The number of employees and the length of the workweek are down in March. The index for employment falls to minus 7.1 after minus 0.2 in the prior month. The index for the average workweek is down to minus 10.4 after minus 4.7.

The good news in the report is that the prices paid index is down to 28.7 in March after an uptick to 33.0 in February. The prices received index is up to 17.8 in March after rising to 17.0 in February. Manufacturers are seeing lower input costs probably related to energy but are able to pass through some of the previous increases.

The Empire State index is expected to fall back in March to minus 8.0 following February's massive 40-point rebound to minus 2.4.

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.