- Associated Press - Monday, December 15, 2014

WASHINGTON (AP) - Manufacturing activity in New York state shrank in December for the first time in nearly two years, pulled down by a drop in orders and shipments.

The Federal Reserve Bank of New York said Monday that its Empire State Manufacturing index dropped to negative-3.6 in December from 10.2 the previous month. Any figure below zero indicates contraction.

The drop may be a sign that the state’s factories are suffering from slower overseas demand as Europe’s economy is barely expanding. The slowdown comes after a rapid run-up in business in the fall. The index reached a five-year high of 27.5 in September.

The New York Fed’s Empire State survey provides an early look at U.S. manufacturing each month. The New York Fed surveys 200 businesses in the state and typically receives responses from 100.

Looking ahead, the state’s manufacturers are still optimistic about their business prospects. A measure of expectations for business conditions in six months slipped, but only after reaching its highest level in nearly three years in November.

U.S. manufacturers face a tough international environment. China’s economy is slowing from its typical breakneck pace and Japan is in recession. The dollar has strengthened against other major currencies, which makes U.S. exports more expensive in other countries.

Recent readings on manufacturing nationwide have been mixed.

U.S. factory orders declined for a third consecutive month in October, the Commerce Department said earlier this month. The drop of 0.7 percent suggests that factory activity slowed in November.

Yet the Institute for Supply Management, a trade group of purchasing managers, said its manufacturing index remained near a three-year high in November. That implies factory production will remain solid.

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