Manufacturing in the New York region expanded at a slower pace than anticipated in May as the cost of raw materials surged.
The Federal Reserve Bank of New York’s general economic index fell to 11.9 from a one-year high of 21.7 in April. Economists in a Bloomberg News survey projected it would drop to 19.6, according to the median forecast. Readings greater than zero signal gains in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.
The report showed factory managers were more upbeat about the future and the group’s hiring index climbed to the second- highest level on record, a sign manufacturing will keep bolstering the economic expansion. Demand from overseas markets is helping companies like Corning Inc. and PepsiCo. Inc. to expand their output and rebuild stockpiles.
“Manufacturing will stay a strong part of the U.S. recovery story,” David Semmens, a U.S. economist at Standard Chartered Bank in New York, said before the report. “The weaker dollar is encouraging exports. We’re looking for firmness in the sector in coming months.”
Estimates in the Bloomberg survey of 52 economists ranged from 15 to 25.
The headline index is based on a separate question and does not reflect changes in areas like orders and employment. For that reason some economists consider it a measure of sentiment.
Rising costs may be making factory managers less optimistic. An index of prices paid climbed to 69.9 from 57.7. It was second to the July 2008 reading as the highest in data going back to 2001. The measure of prices received increased to 28 from 26.9, indicating manufacturers are trying to pass some of those increases along.
The employment measure rose to 24.7 from 23.1 in April. Only the reading reached in May 2004 was higher.
The Empire State gauge of new orders decreased to 17.2 this month from a one-year high of 22.3 in the prior month. A measure of shipments fell to 25.8 from 28.3.
Factory executives in the New York Fed’s district were more optimistic about the future. The gauge measuring the outlook six months from now rose to 52.7 from 47.4.
Manufacturing makes up 12 percent of the U.S. economy and about 6 percent of New York’s. Factory payrolls climbed by 29,000 workers in April for the sixth straight month of employment gains, according to Labor Department data released on May 6.
Companies in the New York region are expanding. PepsiCo, the world’s largest snack-food maker, reported a 27 percent jump in first-quarter sales as new flavors helped it to appeal to customers in international markets. The Purchase, New York-based company raised its annual dividend on May 4.
Corning, a maker of glass for flat-panel televisions, expects sales will grow to $10 billion by 2014, helped by demand from China.
“We’re off to a great start in 2011,” Wendell Weeks, chairman and chief executive officer, said in a statement after the Corning, New York-based company’s annual meeting last month. He said a significant portion of growth will come from China, which is currently the world’s largest market for several of Corning’s major products.
Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management figures on U.S. manufacturing during the month. The Philadelphia report is due May 19.
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