The Empire State manufacturing index for May recorded a value of -9.2, compared to an estimated -10.0, indicating a decline for the third month in a row. New orders and shipments showed growth, registering at 7.0 and 3.5, respectively, improving from last month’s figures of -8.8 and -2.9.

The prices paid index increased to 59.0 from 50.8 last month, continuing a five-month upward trend, while employment fell to -5.1 from -2.6. Inventories decreased from 7.4 to 4.8, and the average workweek improved from -9.1 to -3.4.

Looking Ahead Six Months

Looking ahead six months, general business conditions are expected to improve slightly to -2.0 from -7.4. The number of employees is projected to increase to 11.6 from 3.4, while unfilled orders are expected to decline from -7.4 to -9.5.

The six-month forecast for prices paid predicts an increase from 65.6 to 66.7, while prices received are expected to decline to 35.2 from 45.9. Supply availability is projected to drop to -27.6, and capital expenditures are expected to fall from 1.6 to -6.7, reflecting ongoing challenges in the sector.

The data from the New York Fed suggests an ongoing, although somewhat uneven, weakness across the manufacturing sector. Although the headline Empire State index remains negative, it did come in marginally better than forecast. A reading of -9.2 shows activity contracting again, yet at a slightly slower pace than anticipated. More encouraging, perhaps, is the rebound seen in new orders and shipments. Both have climbed into positive territory, reflecting a bit of life returning to what had previously been stagnation. It’s the first time since late last year that these components have moved in tandem on the upside.

However, the sturdiness of that recovery is already being tested. The increase in the prices paid index should not be overlooked. Rising input costs remain persistent—this marks the fifth month in a row that this measure has gone higher. The move to 59.0 is substantial, especially when paired with a forecast that suggests this pressure likely continues in the near term. When we look at the employment index dropping further below zero, we recognise that firms are not just hesitant to hire but are possibly in a retrenching mood. Perhaps it’s not a full pullback—hours worked did see less of a contraction—but confidence appears to be fraying at the edges.

Cautious Optimism

From the forward-looking components, there’s a sense of cautious optimism, though the tone is still subdued. The six-month outlook for general business conditions is headed upwards from deeply negative territory, though it remains just beneath the surface at -2.0. It’s not a strong vote of confidence, but taken with expectations for hiring improving markedly—from 3.4 to 11.6—it clearly implies that firms see relief ahead. Yet this outlook is complicated: unfilled orders are still projected to fall, and anticipated capital spending has turned negative. That tells us corporate planners are not yet convinced to invest.

There’s more. The expected fall in prices received, despite rising costs, suggests pressure on profit margins will mount. Businesses may struggle to pass along higher input costs, and this, in turn, may discourage hiring or expansion. Supply concerns are still present as well; the worsening availability index paints a picture of frustration that could persist throughout the summer.

Taken all together, the report presents a mix: tentative demand recovery, persistent cost inflation, and a hesitation to expand capacity. All of this matters when parsing expectations for future rate policy, but it also informs how we perceive risk in short-term exposures. Price pressures are heating up again, and margins may struggle to hold. At the same time, forward indicators are more hopeful with respect to hiring and demand. It’s the divergence between those improving clarity on orders and worsening signals around investment and pricing that deserves attention now.

Timing and positioning will matter more if the pressures from cost inflation begin to run counter to weakening corporate investment patterns. One can no longer rely solely on historical price behaviour to guide decisions. The next few weeks may expose a tightening squeeze between rising operational costs and limited pricing power, and that’s where the opportunity and challenge live, side by side.

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