The Empire index of general business conditions rose to its highest level since August, but remains in negative territory. Declines in manufacturing in the New York area continue, but the pace of declines is clearly slowing. Most of the strength in this report was in measures of forward-looking sentiment, rather than current conditions.

The Worst May be Behind Us in Manufacturing

• Manufacturing in the New York area is showing signs of life as businesses and manufacturers are expressing a sharply more optimistic assessment of current situation than they were just a few months ago.

• Some of the largest losses in employment in the current cycle have been in the manufacturing sector. A turnaround in this sector could bring welcome relief to the job market.

Current Conditions Still Weak, but Clearing Skies Ahead

• Despite the improvement in the headline number, many of the measures of the current situation remain weak. The new orders component, for example, lost a bit of ground in May.

• The real news in today's report comes from the more optimistic view of the situation six months ahead. For manufacturers, the end of this recession is apparently in sight. Expectations for future new orders jumped 13 points.