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Manufacturing in New York state shrank for the first time in seven months in May, as new orders fell and shipments grew more slowly.
The Federal Reserve Bank of New York said Monday that its Empire State manufacturing index dropped last month to minus 1, from 5.2 in April. Any reading below zero signals contraction.
The index measures sentiment in New York, but is followed by economists because it provides an early read on factory output nationwide. U.S. factories have been expanding since the fall, after an 18-month slump caused by low oil prices, which lowered demand for drilling equipment.
The new orders index tumbled to minus 4.4 from 7, while the shipments index declined to 10.6 from 13.7. A gauge of hiring slipped to 11.9, still a solid reading, from 13.9.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the index's decline was "disappointing, but not disastrous."
"The big picture in the industrial economy remains one of gradual recovery in the wake of the gentle upturn in capital spending in the oil sector," he said. Drillers have begun ordering more equipment to set up new rigs as oil prices have levelled off.
A broader measure of manufacturing nationwide showed that U.S. factories grew in April for the eighth straight month. The Institute for Supply Management, a trade group of purchasing managers, said its manufacturing index declined to 54.8 from 57.2. But any reading above 50 points to growth. Factory production – which is one part of the index – actually accelerated.
Americans pulled back a bit on buying cars in April, which may weigh on manufacturing output in the coming months. But businesses invested more in industrial machinery and heavy equipment in the first three months of the year, potentially offsetting the drag from autos.