An early warning from New York

Manufacturing activity growth decelerated sharply in New York.

Why it matters: The slowdown could signal a reaction to the growing spread of the Delta variant. And activity in New York generally moves in tandem with other regions of the U.S.

State of play: The Empire State Manufacturing Survey, which tracks activity in New York, is the first of a series of monthly manufacturing reports published by the regional Federal Reserve banks.

  • The August surveys are of particular interest because they occurred amid a spike in COVID infections, the impact of which was not fully captured in the July economic reports.

By the numbers: The survey’s general business conditions index plunged to 18.3 in August from 43.0 in July. A positive number signals growth, but the drop represents a sharp deceleration in activity.

  • This August print was much worse than the 28.0 expected by economists.
  • The shipments, employment and new orders subindexes all deteriorated significantly.

What they’re saying: “The weakening in the Empire State survey data in August could have been some payback from the very strong July data,” JPMorgan economist Daniel Silver says.

  • “The survey also could be picking up a response to recent virus-related developments,” he adds.

What to watch: For more up-to-date color on manufacturing activity, the Philadelphia Fed’s survey will be released on Aug. 19, the Richmond Fed’s on Aug. 24, the Kansas City Fed’s on Aug. 26, and the Dallas Fed’s on Aug. 30.

  • “We expect constraints on pandemic-stricken supply chains and labor markets to gradually ease in the coming months, but these headwinds risk staying strong amid the rapid spread of the Delta variant,” Oxford Economics lead U.S. economist Oren Klachkin said in a report.