The New York Federal Reserve’s gauge of manufacturing activity fell more than expected in June to -8.7 from -3.2 on the back of negative readings in the components measuring new orders, shipments, and unfilled orders, suggesting that activity in the manufacturing sector continues to decline. A further breakdown of the report reflects a surge in input prices, which is unsurprising given the gains we’ve seen in commodity prices in recent months. However, the prices paid component actually eased slightly, indicating that producers may be having difficulty passing down rising costs to consumers. Meanwhile, the employment index showed that the “number of employees” barely managed to remain positive at 1.16, while the “average workweek” tumbled to -2.33 from 1.09, which signals that instead of letting go workers outright, manufacturing firms are cutting back on their hours worked. Overall, the Empire Fed reports highlights the weaknesses in the sector, and suggests that additional downside risks loom for the US economy, which will likely prevent the Federal Reserve from raising rates at the end of the month despite mounting consumer price pressures. – Terri Belkas, Currency Analyst for DailyFX.com