Manufacturing declined for the sixth consecutive month. Economists had predicted the state's manufacturing firms would pull out of the slump to reach the break-even point in the month.
The Empire State Manufacturing Survey, taken the first half of each month, indicated manufacturing activity shrank, but at a slightly slower pace than December. The headline index came to minus 7.8 in January after a reading of minus 8.1 in the previous month.
"Labor conditions remain weak," the Fed said, noting both employment indexes -- measuring number of employees and average work hours -- were both slightly negative for the fourth consecutive month.
The new orders index dropped four points to minus 7.2. The shipments index fell 15 points to minus 3.1.
"Significantly," the Fed said, "the capital expenditures fell index fell to 4.3, its lowest reading since 2009."