Monday brought yet another disappointing economic report. The Federal Reserve Bank of New York released its Empire Manufacturing report for May, with the general business condition index falling handily to −9.02.

This negative number implies contraction and is far worse than what was seen as a positive 9.56 in the month of April. It was also far worse than the Bloomberg consensus estimate of 7.00. In fact, Bloomberg listed its Econoday range as 2.50 to 11.20.

The New York Fed said that the May drop indicates that business activity declined for New York-based manufacturers. The 19 points down was led by drops in new orders and shipments indexes going below zero, which points to a decline rather than weaker expansion in both orders and shipments.

Additional data showed that inventory levels were lower, while delivery times were seen as being shorter.

The Federal Reserve report showed that the prices paid index, a measurement of inflation at the producer level, ticked down to 16.7. While the overall report is negative, the higher base of prices paid acted as a sign that moderate input price increases were continuing. Unfortunately, the prices received index fell below zero. This suggests a small drop in selling prices. If prices paid are remaining higher and prices realized are going down, that translates to margin pressure.

Employment levels appeared to be little changed, while the average workweek index pointed to a decline in hours worked.

The New York Fed suggested that the six-month outlook was somewhat less optimistic than last month. Unfortunately, the capital spending index fell to 3.1, which was the lowest reading in more than two years.

To show how the business conditions have worsened, the New York Fed said:

Following a brief foray into positive territory in March and April, the general business conditions index fell back below zero, declining nineteen points to -9.0. Nineteen percent of respondents reported that conditions had improved over the month, while 28 percent reported that conditions had worsened. The new orders index also turned negative, its seventeen-point drop to -5.5 signaling a decrease in orders. The shipments index, down twelve points to -1.9, showed that shipments were flat, and the unfilled orders index fell to -6.3. The delivery time index, at -6.3, pointed to shorter delivery times, and the inventories index, at -7.3, suggested that inventory levels were lower.

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