New York manufacturing activity unexpectedly contracted in the month of March, according to a report released by the Federal Reserve Bank of New York on Tuesday.
The New York Fed said its general business conditions index tumbled to a negative 11.8 in March from a positive 3.1 in February, with a negative reading indicating a contraction in regional manufacturing activity. Economists had expected the index to dip to a positive 7.0.
With the much bigger than expected decrease, the general business conditions index dropped to its lowest level since May 2020.
The decline by the headline index came as the new orders index slumped to a negative 11.2 in March from a positive 1.4 in February and the shipments index slid to a negative 7.4 in March from a positive 2.9 in February.
The number of employees index also fell to 14.5 in March from 23.1 in February, indicating a slowdown in the pace of job growth.
Meanwhile, the New York Fed noted delivery times continued to lengthen substantially, with the delivery time index jumping to 32.7 in March from 21.6 in February.
The report also showed the prices paid index dipped to 73.8 in March from 76.6 in February, while the prices received index rose to 56.1 from 54.1.
Looking ahead, the index for future business conditions climbed to 36.6 in March from 28.2 in February, as firms were generally optimistic about the six-month outlook.
The New York Fed said longer delivery times, higher prices, and increases in employment are all expected in the months ahead, while capital spending plans remained firm.
“Much improved health conditions and the removal of most pandemic restrictions will fuel a strong revival for in-person services, but there’s still plenty of goods demand to keep manufacturing growing at a hearty pace,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics.
“In fact, supply will be manufacturing’s main problem in 2022,” he added. “The war in Ukraine and the worst outbreak of Covid in China since March 2020 will worsen logistics bottlenecks and stoke more inflationary pressures, aggravating already severe stress in supply chains.”
On Thursday, the Philadelphia Federal Reserve is scheduled to release its report on regional manufacturing activity. The Philly Fed Index is expected to edge down to 15.0 in March from 16.0 in February.