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New York manufacturing activity in May recovered slightly from the stunning low seen the month before, which was twice as bad as the worst reading during the Great Recession. The index came in at -48.5 in May vs. -78.2 the month before, remaining deeply contracted. The latest reading was still far worse than the historic drop of the Great Recession, marking the second worst month in recorded history, and employment in manufacturing fell further.

Key Takeaways

• The Empire State Manufacturing Index recovered 30 points to -48.5, well above expectations of -63.5 but still in extreme contraction, and marking the second-worst reading ever.
• New orders and shipments continued to decline sharply, though not as sharply as the month before.
• Delivery times were shorter, perhaps indicating less pressure on global and national supply chains.
   

Manufacturing in New York had its second-worst month ever in May, with ongoing decline in employment new orders, and shipments. The report described current conditions as “extremely weak,” although clarified that respondents were optimistic that conditions would improve over the coming months.

New orders rose 23.9 points to -42.4, while shipments rose 29.1 points to -39. Any reading below 50 is considered to be contraction. Delivery times came in at -4.1, down 15 points, marking shorter deliveries. Inventories rose 6.3 points to -3.4. Prices paid came in at 4.1 and prices received came in at -7.4. The index for employees gained 49.2 points to -6.1, indicating that layoffs continued but at a slower pace. The average workweek rose 40 points to -21.6, with plants and factories still in lockdown in many places around the country.

Looking to the Future

The six-month outlook was more optimistic, although forecast all components of the index to remain in contraction. General business conditions in six months rose 22.1 points to 29.1. New orders came in at 35, and shipments came in at 33.1 points. The report stated that “On the whole, firms expected business conditions to be better in six months... Indexes for future employment and the average workweek remained modestly positive,” adding that “The capital expenditures and technology spending indexes both remained below zero, a sign that firms planned to reduce both kinds of spending.”

A data point for the May reporting period:

Empire State Manufacturing Index pic.twitter.com/bdASOuTQZo

— Eric Basmajian (@EPBResearch) May 15, 2020

The manufacturing industry, which was already reeling from the barely-concluded trade war with China, has suffered greatly under the pandemic along with many other industries. Supply chains are in chaos worldwide, and containment procedures have made it difficult for factories to continue production. In some cases where mayors or governors didn’t give the order, companies themselves opted to shut their doors in an effort to prevent the spread of the virus. Volkswagen, Chrysler, and Fiat all chose to close factories voluntarily as part of their coronavirus response plan.

Market Reaction

Gold prices have seen strong upward momentum in today’s session, influenced by record losses in retail sales as well as the downbeat manufacturing report. Spot gold last traded at $1,737.99/oz, up 0.43% with a high of $1,744.67/oz and a low of $1,729.10/oz. The staggering losses in retail sales are likely to cut into stock prices for major retailers, and traders may be hedging against a potential ripple effect in the stock market by turning to gold during these turbulent times.