N.Y. Fed's factory gauge softens on slower shipments, order growth

FILE PHOTO: A U.S. flag flies outside The Federal Reserve Bank of New York in New York City, U.S., March 29, 2021. REUTERS/Brendan McDermid

(Reuters) -The New York Federal Reserve said on Monday its barometer of manufacturing business activity in New York State declined more than expected in August as shipments growth nearly stalled and new orders grew at a much softer pace than a month earlier.

The regional Fed’s “Empire State” index on current business conditions fell around 25 points to 18.3, lower than a reading of 29.0 forecast by analysts polled by Reuters. The index had hit a record high of 43 in July.

A reading above zero signals the New York manufacturing sector is expanding.

Supply constraints have continued to slow manufacturing activity nationwide, indicating that the economic recovery might be cooling off in a year in which growth is projected to accelerate at its fastest pace in almost four decades.

The headline index was lower than all but one of the 30 estimates in the Reuters forecast, and the 24.7 point drop was the largest since April 2020, early on in the pandemic.

“We expect constraints on pandemic-stricken supply chains and labor markets to ease gradually in the coming months, but these headwinds risk staying strong as the Delta variant spreads rapidly,” said Oren Klachkin, lead U.S. economist at Oxford Economics.

New York’s manufacturing firms were optimistic, however. The survey’s six-month outlook gauge rose seven points to 46.5.

The indexes for future new orders and shipments rose to similar levels.

“Looking ahead, solid goods demand, rising business investment, and revitalizing growth overseas will keep manufacturing’s gears churning healthily into 2022,” Klachkin said.

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