If you talk to an agent or an editor - whether they're thinking of offering you a contract or just making conversation - this question will come up. Probably. Most likely. Almost certainly. This is not bad! In fact, it's great. The only thing you have to make sure of is that you are, in fact, working on something.
I've learned the importance of always having a project to work on. Even if you've just finished a manuscript! Publishing is about two things: now and next. It's a safe bet that if you're chatting with someone in this business, you've got something to offer now. Do you have the next? It doesn't matter if you're not published yet. Whether you're waiting to hear back from an agent or waiting on notes from your editor, you should be writing. We all should be writing.
That's what we do, right?
What are you working on now? I love getting this question. One, because it's always fun to talk about your work and have someone actually be interested in what you're saying. And two, because it holds so much potential. Potential that this agent or editor might want to see this story, potential that it will be the best thing you've ever written.
Sometimes we might hesitate about opening a brand-new W.I.P. But I honestly think it's a necessity. Even if you've recieved bad news about your other story, or you're in revisions, anything - my advice is to start something new. Just have something else. An idea, a seed, a sentence.
Because when you're asked that question, you're going to want to have a good answer.