Business activity bounced back in July with the Empire State index recovering into expansion territory at 5.5 from minus 16.0 in June. That compared with consensus expectations for a minus 10.0 figure -- with a high forecast at minus 6.9. This was the first positive index reading since February, before the shock of"Liberation Day" tariffs on April 2.

The improvement reflected an uptick in new orders to 2.0 in July from minus 14.2 in June. Shipments rose to 11.5 in July from minus 7.2 in June. Employment rose to 9.2 from 4.7.

The 6-month expectations index remained solidly positive at 24.1 in July versus 21.2 in June.

Forecasters see contraction continuing with the index at minus 10.0 in July versus minus 16.0 in June.

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.