N.Y. Fed Manufacturing Index Unexpectedly Falls to -1.98 in June

New York state business conditions in June are contracting for the second time in three months, according to data released Monday by the Federal Reserve Bank of New York. Hiring, however, is picking up.

The Empire State's business conditions index unexpectedly dropped to -1.98 in June from 3.09 in May and -1.19 in April.

Economists surveyed by The Wall Street Journal expected the latest index to increase to 5.4. A reading above 0 indicates expansion.

The New York Fed report--while covering a small geographical area--runs counter to recent very upbeat data on the nationwide second-quarter economy, including solid numbers on retail sales and employment. The New York Fed said that the weak readings in its top-line factory index suggest "that activity has remained flat since April."

According to the New York Fed, demand has tapered off sharply. The new orders index for state manufacturers declined to -2.12 in June from 3.85 in May.

Other readings, however, are not so bad. The shipments index slowed slightly to 12.01 from 14.94. And New York state manufacturers are hiring more workers. The employment index increased to 8.65 from 5.21 in May. The workweek index jumped to 3.85 this month from -2.08 in May and -4.26 in April.

Pricing power remains elusive for New York state manufacturers, even as costs rise. The prices-received index fell to 0.96 in June from 1.04. The prices-paid index was little changed at 9.62 from 9.38 in May.

"The index for future general business conditions retreated in June, suggesting that optimism about future business conditions waned," the report said.

The general business conditions expectations index for the next six months eased to 25.84 from 29.81. New orders expectations also slowed to 26.10 from 33.94. The employee expectations fell again to 13.46 this month from 16.67 in May which was down from 22.34 in April

The New York Fed survey is the first monthly factory report released by regional Fed banks. Economists use the Fed surveys as guideposts to forecast the health of the national industrial sector as captured in the monthly manufacturing report done by the Institute for Supply Management. The Philadelphia Fed is scheduled to release its own regional survey on Thursday.

(By Kathleen Madigan)