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Net Net: Promoting innovation and managing change

Manufacturing is clearly in recession

Unlocking value in domestic manufacturing

Manufacturing and corporate profits are both in recession mode, even though the rest of the U.S. economy continues to limp along.

The latest confirmation of troubles came Monday with the Empire State manufacturing index, a gauge of New York activity that clearly shows contraction in the sector.

The November reading of -10.74 was actually a modest improvement improvement over October's -11.36, but reflects a decline that began in September 2014, when the measure peaked at a 27.54, at that point the highest since October 2009. The numbers represent the percentage change in conditions from the previous month.

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Collectively, the readings over the past month indicate the worst manufacturing climate since March 2009, just as the economy was escaping the throes of the Great Recession and the same month in which the stock market hit a bottom that paved the way for a more than 200 percent recovery in the .

An employee builds a window at the Thompson Creek Window factory in Landover, Md.
Saul Loeb | AFP | Getty Images

Economists aren't worried that this necessarily sends ominous signals for broader growth. Manufacturing comprises 12.1 percent of gross domestic product and has been on the decline for the past 10 years in relative terms.

The Empire "figures suggest that the manufacturing sector is deep in recession, but the actual output figures have been slightly more upbeat — manufacturing output has been trending broadly sideways since the start of this year, but has not suffered any sustained contraction," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note.

That's a rosy view for a sector showing some glaring weaknesses in a geographical region that was once the epicenter of U.S. manufacturing activity.

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Internal figures show that the headline number continues to indicate broad contraction as well as substantial weakness in key areas.

The key employment indicator was still well in contraction territory at -7.3, while the average workweek hit its lowest level since mid-2011.

The report comes as the market watches closely for clues about the Federal Reserve's intentions. The U.S. central bank is expected to increase rates for the first time in more than nine years at the December Federal Open Market Committee meeting.

However, it faces obstacles from various weak data points. Besides manufacturing, wage pressures and inflation overall remain muted, while corporate earnings are likely to show negative growth for the third straight quarter, according to FactSet. That would be the first time since 2009. Top-line revenue is expected to contract for the fourth straight quarter as well.

Traders continued Monday to believe in a rate hike, however with somewhat less conviction amid fallout from the terrorist attacks Friday in Paris. The market was pricing in a 64 percent chance of a December move, down from 70 percent Friday.