The general business conditions index in the New York Fed Empire State survey of manufacturing is down to minus 15.6 in May after minus 14.3 in April. The index is below the consensus of minus 10.0 in the Econoday survey of forecasters. The index has remained consistent with contraction for the past six months. The index tends to swing between weaker and firmer readings on a month-to-month basis. Although this is the case for May, the softening is relatively small and in line with the two-month moving average of minus 15.0. This suggests that conditions in the region's factory sector are slow but relatively stable in the past couple of months.

The detail indexes suggest that conditions are more settled for the New York survey respondents. In particular, the index for new orders is little changed at minus 16.5 in May after minus 16.2 in April. The order backlogs index is slightly less negative at minus 8.1 in May after minus 10.1 in April. Lack of new orders and shrinking backlogs mean that orders are shipping without delays. The index for shipments is up to minus 1.2 in May after minus 14.4 in April. There are few delays along the supply chain. The delivery times index is down to minus 9.1 in May after minus 7.9 in April. The inventories index shows no accumulation of unwanted stocks at 2.0 in May after 3.4 in April.

The index for employment is down to minus 6.4 in May after minus 5.1 in April as manufacturing businesses decline to hire, although layoffs are generally low. The average workweek index is less negative at minus 5.8 in May after minus 10.6 in April as factories cut hours during a sluggish period.

The index for prices paid declined to 28.3 in May after 33.7 in April and points to some relief in energy costs. Prices continue to rise only modestly. The prices received index is down to 14.1 in May after 16.9 in April with manufacturers still passing on some higher input costs.

The Empire State index is expected to continue to contract in May, at minus 10.0 following April's minus 14.3.

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.