Manufacturing in the New York region has lost its most ground since the last recession. A Federal Reserve Bank of New York report released on Monday shows the Empire State index plunged to minus 14.9 in August, the lowest level since April 2009, from 3.9 the prior month.
A reading less than zero indicates contraction. The report also revealed that gauges of orders and sales also retreated.
The rising U.S. dollar has made American goods more expensive to produce and harder to sell overseas. That means an increasing number of factories in New York State are stuck with too many goods in stock and no way to offshore them.
Despite overstock, manufacturers in New York State remain optimistic about upcoming opportunities, signaling that the downturn might be short-lived.
Carl Riccadonna, chief U.S. economist at Bloomberg Intelligence in New York says, “Weakness in the headline matched by broad-based weakness throughout the details suggests that something is going sour in the factory sector … Either factories are being clobbered by an aggressive attempt to unwind inventories, which we know built up pretty substantially in the first and second quarters, or they’re facing a very significant downdraft from the strengthening of the dollar.”
The contract on the Standard & Poor’s 500 Index maturing in September declined 0.4 percent to 2,082.00 at 9:09 a.m. in New York, while the yield on the benchmark 10-year Treasury note fell to 2.16 percent from 2.20 percent late on Aug. 14.
Factories throughout the United States have created 1.35 months of stockpile in anticipation of an increasing sales pace. That stockpile is the highest level since 2009 according to the Commerce Department.
“The fact that six-month conditions are improving to me suggests that maybe it is just an inventory workdown and less due to the dollar because I don’t think businesses are expecting the currency to move in their favor any time soon,” Riccadonna said.