Manufacturing in the New York region unexpectedly shrank in June, a sign the industry still faces parts shortages following the disaster in Japan.
The Federal Reserve Bank of New York’s general economic index dropped to minus 7.8, the lowest level since November, from 11.9 in May. The median forecast in a Bloomberg News survey of economists was 12. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.
The figures are consistent with May reports that showed disruptions following the earthquake and tsunami in Japan are weighing on American factories. As parts shipments resume, energy costs recede and overseas demand boosts sales at manufacturers like industrial filter-maker Pall Corp., the industry may rebound in the next six months.
“The slowing is reflective of the situation in Japan, which is going to work itself out,” David Semmens, a U.S. economist at Standard Chartered Bank in New York, said before the report. “We’ll be back to business as usual in the second half. Manufacturing will stay a positive for growth.”
Estimates in the Bloomberg survey of 52 economists ranged from 3.8 to 18.
The headline index is based on a separate question and does not reflect changes in areas like orders and employment. For that reason some economists consider it a measure of sentiment.
The Empire State gauge of new orders decreased to minus 3.6 in June from 17.2 the prior month. A measure of shipments fell to minus 8 from 25.8.
The employment measure decreased to 10.2 from 24.7. Fewer manufacturers in June said they expect to boost payrolls in the coming year compared with January, according to a supplemental question in the Fed’s survey of businesses.
An index of prices paid fell to 56.1 from 69.9, while prices received dropped to 11.2 from 28.
Factory executives in the New York Fed’s district were less optimistic about the future. The gauge measuring the outlook six months from now declined to 22.5 from 52.7.
Manufacturing makes up about 12 percent of the U.S. economy and about 6 percent of New York’s. U.S. factory payrolls dropped by 5,000 workers in May, according to Labor Department data.
Pall reported a 15 percent jump in sales in the quarter ended April 30. Revenue from Europe grew, and “China and India, in particular, did very well,” according to Chief Executive Officer Eric Krasnoff.
“A confluence of trends are supporting the business and setting the stage for future growth,” Krasnoff said on a conference call with investors on June 9. These include “improving economies” and “a rising middle class in developing regions,” he said.
At the same time, Pall is not immune to supply constraints arising from Japan, he said.
“We could continue to see business disruptions in Japan in the short term,” Krasnoff said on the call. “Longer term, opportunities with the third-largest economy in the world, as they rebuild, will improve our prospects.”
Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management figures on U.S. manufacturing during the month. The Philadelphia report is due tomorrow.
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