<

Must-know releases shaping bonds and stocks this week

Part 2
Must-know releases shaping bonds and stocks this week (Part 2 of 9)

Why New York manufacturing impacts software companies like IBM

Six-month outlook remains optimistic

The outlook for the Empire State Manufacturing General Business Conditions Index for the last six months remained fairly optimistic. The index for future general business conditions fell to 33.2 from 39.0 in January. The capital expenditures index rose 14 points, to 16.5, and the technology spending index increased to 7.1. The index for future prices and the expected number of employees sustained its positive growth, while future new orders dropped.

IYW Share PriceEnlarge Graph

Manufacturing industry trends

Following the recession, the Empire State Manufacturing Index has mostly gained, adjusted for some months’ volatility, indicating strength in the New York manufacturing sector. Manufacturing activity in New York varies across regions. For example, Central New York is highly concentrated in computers and electronics product manufacturing—which is by far the largest manufacturing sub-sector in the Empire State. Major software giants like International Business Machines Corporation (IBM), Computer Associates International, Inc. (CA), and MapInfo Corporation (MAPS) have their offices based in New York. These companies are also part of major ETFs like iShares US Technology (IYW), which tracks the performance of U.S. equities in the technology sector. Collectively, this industry has the highest number of New Yorkers working in about 8,000 software-related firms.

Another way to assess growth in the manufacturing industry is to see the paycheck a New Yorker takes home. Since the technology industry in New York caters to high-value enterprise businesses, the products manufactured in New York generate more employment compensation compared to other states. Other major manufacturing industries scattered throughout New York include chemical, paper mills, transportation, machinery industries, food manufacturers, and fabricated metal products.

Market reaction to the Empire State Manufacturing Index

The manufacturing sector is one of the leading indicators of economic growth. Increases in manufacturing indicators have a big influence on the stock and bond markets. While the stock market reacts positively on increases in the manufacturing indicator, the bond market tends to assess the impact of growth in the future inflation rate, which could adversely impact the bond market. Investors assess manufacturing data to understand the current state and prospects for the economy. The stock market ETF SPDR S&P 500 (SPY) was up by 0.9%, while the Total Bond Market ETF (BND) declined 0.14% with the rise in the Empire State Manufacturing General Business Conditions Index on March 17, 2014.

To find out about other important reports on manufacturing shipments released this week, read on to Part 3 of this series.

The Realist Discussions