Manufacturing activity in New York contracted more than expected, but future outlook is the best in five years.

The New York Fed released data on Monday showing that manufacturing activity in the state unexpectedly contracted in June, with both new orders and shipments declining, but businesses' optimistic sentiment about future operating conditions has improved. According to the report, the overall business conditions index for manufacturing in New York fell by nearly 7 points to -16, marking the fourth consecutive month in contraction territory (the index below zero indicates industry contraction). This result was well below the median forecast of -6 by economists. However, the future business conditions expectations index surged by 23 points over the next six months, marking the largest increase in nearly five years, reflecting a similar economic recovery trend to the early stages of post-lockdown periods during the pandemic. Expectations for new orders and shipments both saw significant rebounds compared to the previous month. The survey data was collected from June 2nd to 9th, just before the temporary agreement reached by the U.S. and China to ease trade tensions. After two days of trade negotiations in London, the two countries reached agreement on implementing the consensus framework to reduce tariffs reached at the Geneva meeting. In terms of cost pressures, the current index for prices paid for raw materials plummeted by 12 points to 46.8, marking the largest drop in nearly two years. Expectations for future prices among manufacturers also declined. However, at the same time, the index for finished product prices rose to its second-highest level since early 2023, with expectations for future pricing continuing to rise. Analysts point out that the manufacturing sector continues to face twin pressures of high input costs and trade policy uncertainty. Many clients have postponed investment decisions due to unclear tariffs and tax policies being discussed in the U.S. Congress, further exacerbating industry challenges. Other breakdown data shows that the current new orders index plummeted by 21 points to -14.2, while the shipments index fell to -7.2, with both indicators reaching three-month lows.