New York Fed: November Manufacturing Activity Expanded at Fastest Pace in a Year
The New York Fed's November manufacturing survey showed that factory activity in New York State expanded at the fastest pace in a year, with growth in new orders and shipments as the main drivers. Despite signs of softening in the national labor market, local employment rose slightly and working hours extended. Businesses' optimism about the outlook declined from the previous month but still expected conditions to improve. Meanwhile, the federal government shutdown delayed the release of key economic data, and Fed Vice Chair Jefferson and Governor Waller expressed differing views on the policy path.
Key Points
- The New York Fed said on Monday that manufacturing activity in New York state unexpectedly accelerated this month to its fastest pace in a year, driven by growth in new orders and shipments.
- Despite signs of softening in the national labor market, factory employment in New York state rose slightly, and the average workweek lengthened. Citing the business survey, the New York Fed said firms were less optimistic than last month but still expected conditions to improve.
- "Manufacturing activity grew at a solid pace in November," said Richard Deitz, economic research advisor at the New York Fed, in a statement. "Although firms expect conditions to improve, optimism about the future has declined."
Deeper Dive
The New York Fed's Empire State Manufacturing Survey, though volatile on a monthly basis, is widely seen as a bellwether for U.S. manufacturing. This month, the survey gained more attention because the 43-day federal government shutdown left most federal economic indicators unavailable, except for a few timely data points.
"At this moment, it is especially important to gather economic information broadly, as the recent federal government shutdown delayed the release of key economic indicators," Federal Reserve Vice Chair Philip Jefferson said in a speech on Monday.
Jefferson noted that the shutdown may have weighed on the economy this quarter, as federal workers were furloughed and government purchases of goods and services, including payments to contractors, were paused. Although delayed federal payments may also have dampened private-sector growth, the impact could be "temporary and may reverse in the coming months," Jefferson said.
The Atlanta Fed said on Monday that the economy expanded at an annualized rate of 4.1% last quarter. That estimate aligns with Jefferson's view that, before the shutdown, the U.S. was "on a moderate growth track this year."
Easing concerns about the highest U.S. tariffs since the 1930s may partly explain the improvement in manufacturing activity. According to FactSet, mentions of tariffs by executives on third-quarter earnings calls fell 33% from the second quarter. This marked the second consecutive monthly decline in mentions of import taxes.
"A reasonable baseline scenario is that tariffs cause a one-time change in the price level, rather than a persistent inflation problem," Jefferson said. But he did not indicate whether he supports a third consecutive 25-basis-point rate cut this year at the December 9-10 policy meeting.
In contrast, Federal Reserve Governor Christopher Waller showed no policy uncertainty in his speech on Monday, citing signs of a cooling labor market to call for lower borrowing costs. "Given that inflation is near the Federal Open Market Committee's [2%] target and there is evidence of labor market weakness, I support cutting the committee's policy rate by another 25 basis points at the December meeting," he said.
"I am concerned that restrictive monetary policy is weighing on the economy, especially its impact on middle- and lower-income consumers," Waller said. "A December rate cut would provide additional insurance against an accelerated softening in the labor market."