After six consecutive months of growth, the New York Fed's general business conditions index dropped 20 points to minus 7.8, the bank announced.
The last time the index was below zero was November 2010.
Numbers above zero indicate growth. Below zero indicates contraction.
In the manufacturing index for New York, based on a survey taken the first two weeks of each month, new orders and shipments both fell below zero with readings of minus 3.6 and minus 8, respectively.
The negative numbers showed not only contraction but dramatic declines. The new orders index lost 21 points. The shipments index lost 34 points.
The inventories index lost 10 points, but stayed positive at 1.
Employment also stayed positive, but the index lost 15 points to 10.2. The number of hours worked index lost 26 points, dropping to minus 2.
Optimism among the survey's respondents deteriorated "significantly," the Fed said.
The future general conditions index, which covers expectations six months in the future, added five points in May, but gave up 30 points to 22.5 in June.