Dive Brief:
- Manufacturing activity this month edged up but slowed from a four-year high in August as prices rose and shipments fell, the Federal Reserve Bank of New York said Tuesday.
- The Empire State Manufacturing Survey index of business conditions declined 13 points from the level in August but remained positive at 7.6, the New York Fed said.
- “Pricing pressures intensified,” the regional bank said. “The prices paid index rose five points to 63.1, edging above its recent four-year high reached in May 2026, and the prices received index rose five points to 28.1, pointing to a pickup in input price and selling price increases.”
Dive Insight:
Inflation has persisted above the Fed’s 2% goal for more than five years, fueled in 2026 by tariffs, a war-induced jump in energy prices and a surge of investment in data centers and other building blocks for artificial intelligence.
The price of Brent crude oil during the past month has soared 22.4% to $108.38 per barrel amid flare-ups in fighting between U.S. and Iranian forces.
Higher energy costs and import taxes have pushed up prices across the economy. The consumer price index, excluding volatile food and energy prices, edged up 0.1 percentage point last month to 0.3%, the Bureau of Labor Statistics said Friday.
The CPI increase exceeded forecasts and solidified a consensus among investors that Fed policymakers will raise the main interest rate by a quarter point after a two-day meeting ending Wednesday.
Inflation will probably slow factory activity in coming months, economists said.
Demand for manufactured goods, while “resilient for now,” will “likely wobble as output prices rise further,” Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said, noting that the prices paid index this month hit the highest level since June 2022.
“We expect demand for goods to falter as manufacturers pass on higher costs, given the current weakness of labor income growth and households’ below-trend level of liquid assets,” Tombs said in a note.
Tombs cautioned that the survey of New York manufacturers is highly volatile and noted that, on a three-month basis, the index average remained at a high level.
“The index is prone to wild swings,” he said. Still, the soaring oil price “casts a shadow over the sector’s upturn.”
Treasury Secretary Scott Bessent on Tuesday voiced no doubt in the future strength of manufacturing.
“U.S. manufacturing is roaring back to its fastest pace in years,” he said in testimony to the House Financial Services Committee.
“A new industrial supercycle is moving from investment into production, and from blueprints into paychecks,” he said.
The bond market on Tuesday did not support Bessent’s sunny forecast.
The yield on the 10-year Treasury note hit 5.045%, the highest level in 19 years, before pulling back somewhat. Rising yields in the benchmark bond increase borrowing costs for businesses and households.
