The Empire State Manufacturing Survey is a barometer of economic conditions in New York State
The Survey is put out by the New York Fed and covers a wide range of economic indicators, from general business conditions, to new orders, shipments, unfilled orders, delivery times, inventories, prices paid and received, headcount and average workweek. It also asks businesses for their outlook six months out. It is a relatively comprehensive survey of business conditions, however it is concentrated on New York State, which is a small subset of the population.
Index increases and approaches “normalcy,” but internals tell a different story
The general business conditions index rose nine points, and closed at +7.8 (29.4% reported better conditions, while 21.6% reported worse conditions – the net result is +7.8%), which was a rebound from last month. The headline general business conditions survey was the highlight of the report. Most of the internals were weaker. New orders, shipments, unfilled orders, employment and average workweek fell. Prices paid and prices received increased. The forward-looking expectations were better, with the index moving marginally lower to 25.
Every month, the Survey goes in depth on some economic statistic, and this month it focused on the fallout from Hurricane Sandy. A large majority (60%) of firms based in the New York City metro area reported that they were shut down or severely crippled from Sandy. It took roughly two and a half weeks for conditions to return to normal for the affected firms. 90% of companies in upstate NY did not feel any effects of Sandy on business. The average affect on revenues for affected firms was about 7 days’ worth of business and the median dollar estimate for damages came in at $35,000.
Implications for home builders:
Overall, the report shows the economy is still expanding moderately, and firms are generally optimistic about the future. Consumer sentiment is driven first and foremost by jobs, and nothing in this report gives an indication that employment conditions will get worse. One worrying sign was that plans for future employment and capital expenditures fell, but were still non-negative.
The increase in consumer sentiment is starting to drive more business for the homebuilders like Ryland (RYL), Meritage (MTH), KB Homes (KBH), Toll Brothers (TOL), and NVR. Housing starts have been so low for so long, that there is some real pent-up demand that will become unleashed as the economy improves. In spite of the mixed report, the latest National Association of Homebuilders Sentiment Survey was at the highest level since 2006, indicating that despite the pressure felt in the rest of the economy, things are going well for the builders.
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