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Manufacturing in New York Region Contracts for a Fourth Month

Nov. 15 (Bloomberg) -- Manufacturing in the New York region contracted for a fourth straight month in November as superstorm Sandy knocked out electrical power and limited activity.

The Federal Reserve Bank of New York’s general economic index was minus 5.2 this month after minus 6.2 in October. The median forecast of 55 economists in a Bloomberg survey called for minus 8. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Power outages and destruction in New Jersey and New York from Sandy placed a temporary burden on the region’s factories, which have been challenged by slowing overseas economies. Companies have limited orders to factories as they pull back on equipment investment on concern lawmakers will fail to avoid the fiscal cliff -- a package of automatic tax increases and spending cuts set to take effect early next year.

“Capital expenditures look to be slowing in earnest,” Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York, said before the report. “In addition to the fiscal cliff and uncertainty, we’ve had a synchronous slowing in global manufacturing that’s affecting us here at home.”

All survey respondents in the New York City area reported “some reduction in activity” because of Sandy. The loss of power and communications was the biggest reason cited by 70 percent of those businesses.

Bloomberg survey estimates ranged from minus 16.2 to 2.

The Empire State measure of factory employment dropped to minus 14.6, the weakest since July 2009, from minus 1.1 in October.

Orders, Shipments

The gauge of new orders increased to 3.1 from minus 9 in October. A measure of shipments rose to 14.6 from minus 6.4.

The index of prices paid eased to 14.6 from 17.2, while prices received rose to 5.6 from 4.3.

Factory executives in the New York Fed’s district were less optimistic about the future. The gauge measuring the outlook six months from now dropped to 12.9 from 19.4.

Manufacturing makes up about 12 percent of the U.S. economy and about 6 percent of New York’s.

Economists monitor the New York report and Philadelphia Fed factory readings, due later today, for clues about the Institute for Supply Management figures on U.S. manufacturing, set for release Dec. 3.

Caterpillar Inc. and General Electric Co. are among companies that have cut forecasts, a reminder that business investment will no longer bolster the world’s largest economy as it did earlier in the recovery. Wind turbine manufacturers Vestas Wind Systems AS and Seimens AG are laying off workers amid a slowdown in orders triggered by the fiscal cliff.

Rail Shipments

Railroads that once counted on a late-year surge in shipping volumes are seeing their peak season dissipate as retailers change their buying habits to stock only as much as they can sell. Retail sales in October fell for the first time in four months, Commerce Department figures showed yesterday.

Norfolk Southern Corp., based in Norfolk, Virginia, also reported weaker demand for coal and other raw materials in October even before Sandy made landfall, said Chief Financial Officer John Rathbone.

“We, like a lot of lot of companies, are concerned about the fiscal cliff and what it means to the economy,” Rathbone said at a Nov. 14 conference. “We’re hoping that Washington will see its way clear of making a rational decision on that.”

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