The specter of stagflation is haunting the U.S. economy after the New York Fed reported that activity slowed much more than expected in August even while prices soared.
The Federal Reserve Bank of New York’s Empire State Manufacturing Index plunged 25 points to 18.3, far below the 29 score forecast by analysts.
The prices received index jumped to 46, a record high. Just 1.8 percent of New York manufacturing businesses reported lowering prices, while 47.8 reported raising prices.
The prices paid index slipped slightly from the record high in July, declining 0.7 points to 76.1.
Typically, higher prices should drive more economic activity. When business expansion slows while prices keep rising, this is known as stagflation.
The indexes for new orders, shipments, and inventories all declined. The indexes for average employee workweek and number of employees also fell. Despite the decline, all the components remain in positive territory, indicating that orders, shipments, and hiring continued to expand, albeit at a slower rate than earlier this summer.
The outlook remains strong. The indexes for general business conditions and new orders six months from now both climbed, as did shipments. The forward-looking prices paid index climbed, while the outlook for prices received declined somewhat. Both the forward-looking prices indexes remain new record highs.