This morning’s report on manufacturing activity in the New York area provides one of the first reads on how business activity is trending for the month of February, and the results were a bit weaker than expected. While economists were expecting the headline General Business Conditions index for the month of February to increase slightly from last month’s reading of 17.7, the actual reading missed to the downside coming in at 13.1. While the current conditions index (dark blue line) declined for the fourth straight month, the index for expected conditions six-months out rose for the fourth time in five months, hitting its highest level since January 2012. Eventually, this divergence has to resolve itself; the only question is in which direction that happens.
The table below breaks down this month’s report by each of its sub-sectors. In terms of current conditions, despite the decline in the headline index, most of the components actually increased this month. Conversely, while the index of General Business conditions for six months out increased, most of the subcomponents declined.
With all the focus on inflation recently, we wanted to highlight a few of the components in this month’s report that could impact prices. The first is Delivery Times. While the current conditions index is well off its recent highs, the index for six months out rose to its highest level in the history of the survey. Extended delivery times can often be a sign of supply problems which can have inflationary implications down the line.
The Prices Paid components of this month’s report also remain elevated with the current conditions index at its highest level since mid-2012.
Similarly, Prices Received is also elevated as the current conditions component remains right near its highest level since mid-2012 as well. Based on trends in Prices Received as well as the indicators above, it doesn’t appear as though any upward pressure in prices is going to abate any time soon.