By Geoffrey Smith

Investing.com -- A key gauge of U.S. manufacturing sent an alarm signal on Tuesday, highlighting a growing divergence between a relatively strong labor market and a stuttering real economy.

The Empire State manufacturing index, compiled by the New York Federal Reserve, plunged from -11.2 in December to -32.9, its lowest since the early days of the pandemic, as companies reported sharp drops in both new orders and shipments.

Analysts had expected a modest recovery to -8.7 ahead of time.

The Empire State survey doesn't reflect nationwide activity quite as accurately as the more representative Philadelphia Fed survey, but is nonetheless a stark reality check to those who have interpreted a series of strong labor market reports as evidence that the U.S. can avoid a recession this year.

The New York Fed said its sub-index for future business conditions held steady at 8.0, suggesting that firms expect little improvement over the next six months.