New York Empire State factory gauge plunges in August deep into contraction territory

General conditions index drops 42 points to negative 31.3 -- the second largest decline on record

The numbers: The New York Fed's Empire State business conditions index, a gauge of manufacturing activity in the state, plummeted 42.4 points to negative 31.3 in August, the regional Fed bank said Monday.

This is the second largest monthly decline on record and among the lowest levels in the survey's history, the regional Fed bank said.

Economists had expected a reading of 5.0, according to a survey by The Wall Street Journal.

Any reading below zero indicates deteriorating conditions.

Key details: The index for new orders dropped 35.8 points to negative 29.6 in August.

The shipments index fell 49.4 points to negative 24.1.

Unfilled orders fell for the third straight month.

Labor market conditions weakened. The prices-paid index fell 9 points to 55.5, its lowest level in over a year.

In addition, manufacturers were not optimistic about the six-month outlook.

Big picture: Economists were expecting a small retreat in the factory index, not a rout. The U.S. manufacturing sector, which was a strength during the recovery from the pandemic, is facing a steep drop-off in new business.

The New York data, and a similar reading from the Philadelphia Fed, are seen as early indicators for the health of the factory sector in August.