william c dudley : regional economy and manufacturing update remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the quarterly regional economic press briefing, new york city, 22 july 2010. * * * good morning and welcome to the new york fed ’ s july 2010 regional economic press briefing. i value this opportunity to talk with the journalists covering our region – and through you, to the people in our district. my goal this morning is to share how i see regional economic conditions, with particular focus on the manufacturing sector in the second federal reserve district. my colleagues will follow me and provide more detail on the patterns that i ’ ll describe. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee or the federal reserve system. i. national economic conditions to provide some context, i ’ ll begin with a few words about national economic conditions. u. s. economic activity has expanded for four consecutive quarters, but at rates that can only be described as modest when compared with early stages of past recoveries. the june payroll numbers tell the story of this sluggish recovery in employment. the economy gained only 83, 000 private - sector jobs, following a downwardly revised gain of only 33, 000 in may. growth in the third quarter may turn out to be a bit less than we saw in the first half of the year, though we think there is only a slight risk of a double dip. the road to recovery is turning out to be a bit bumpy as relatively weak consumer spending and the ongoing problems in financial markets are keeping growth far less robust than we would like. to date, the manufacturing sector has been a key source of growth during the recovery. after an unusually steep decline from late 2007 to mid - 2009, manufacturing output has grown rapidly over the past year, although the level of manufacturing output remains well below the previous peak. a major force behind the growth of manufacturing output has been an unusually pronounced inventory cycle. production has expanded as firms across a variety of industries have been rebuilding their stocks to bring them into a better balance with sales. another driver of manufacturing output over the past several quarters has been a pronounced rebound of our exports of manufactured goods. economic activity abroad has been recovering from its weak levels in 2009, and that global recovery has helped fuel demand for our products, particularly capital goods. the importance of manufacturing in the recovery makes it a timely topic for our regional economic briefing

combination of the restocking of inventories, domestic demand growth ( particularly in investment goods ), and higher exports. the concentration of these industries in parts of our region meant that those areas were poised to take advantage of this growth. the region has seen some increase in factory jobs in recent months, which undoubtedly reflects the expansion of production that has occurred nationally in these industries. a number of indicators suggest that the inventory cycle may be largely complete – that is, the recent restocking has brought inventories into a better balance with sales. if so, we will lose restocking as an impetus for growth. despite this, we expect manufacturing output to continue to expand because of improving domestic demand and foreign demand for u. s. manufactured exports. yet, if this recovery follows the typical pattern for past recoveries, the prospect for growth in factory jobs will likely be weaker here than the rest of the nation. longer term, the sector ’ s prospects are likely to be governed by a continuation of the trends i mentioned before in international trade, technology and consumption patterns. this means that output and wages will likely continue to rise, both nationally and regionally. however, the sector is unlikely to be a major source of job growth. beyond the national trends that work against an expansion of factory jobs, the new york - new jersey region faces ongoing competitive pressures as a location for manufacturing production. that competition comes from other regions of the country, as well as from abroad. one key to meeting these competitive challenges will be for the region to ensure that it develops and attracts a highly skilled workforce that can meet the needs of innovative and rapidly changing firms. iv. the empire state manufacturing survey in order to monitor conditions in the region, the new york fed conducts a monthly survey of manufacturing firms in new york state, our empire state manufacturing survey. let me tell you a little about the survey and then review recent patterns. the survey is sent to a pool of about 200 manufacturing executives in a wide variety of industries across the state. about 100 responses are usually received. for the survey ’ s main index – which is called the general business conditions index – respondents report the change from the previous month in of overall conditions in their firm. to explain their answers, we also ask them to assess components of activity such as orders, shipments, inventories and employment. respondents are also asked for their views on the likely direction of these indicators over the next six months. in addition, each month we ask supplementary questions on a