Why New York’s Manufacturing Survey may mean upbeat tech earnings

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Jul. 24 2014, Updated 8:00 a.m. ET

New York’s Manufacturing Survey

The New York Fed released the results of the Empire State Manufacturing General Business Conditions Index on Tuesday, July 15. The headline reading, measuring current manufacturing activity, was reported at 25.6—the highest level since April, 2010. This was also the third consecutive increase in the monthly Index. The reading is indicative of strong manufacturing growth in New York state.

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The Index reading was boosted by the critical sub-indices of employment, shipments, prices paid, and received indices. Shipments also reached a high in over four years. New orders showed increase although not at the rate of shipments. The Index showed strong gains measuring the number of employees, while the average work week increased modestly.

Firms less upbeat about future business conditions

Even though the current conditions index reached a four-year high, survey respondents were less optimistic about future business conditions. Most indicators gauging future business conditions declined, with notable exceptions. The prices paid and the prices received indices recorded month-over-month (or MoM) increases, as did the measure of technology spending.

The report’s other negatives included lower inventories and a decline in unfilled orders. Slowing prices for both inputs and finished goods were one of the report’s negatives.

Inflation makes its presence felt

The increase in both prices paid and prices received, both in terms of current and future business conditions, raises inflationary flags. In the last two months, both the major inflation measures, the Consumer Price Index (or CPI) and the Change in Personal Consumption Expenditure (or PCE), have shown signs of increase. The New York Manufacturing Survey report is consistent with these readings.

Investor impact

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The survey gives an upbeat picture about manufacturing conditions in New York state. It may benefit companies included in the manufacturing and industrial sectors. Popular exchange-traded funds (or ETFs) with a sector slant towards these companies include the iShares U.S. Industrials ETF (IYJ) and the State Street Industrial Select Sector SPDR (XLI).

Another key takeaway from the survey report is the outlook for tech spending. This may benefit companies that are included in ETFs like the SPDR Technology Select Sector ETF (XLK) and the iShares Dow Jones U.S. Technology Sector Index Fund (IYW), which include companies like Oracle (ORCL) and IBM.

What is the Empire State Manufacturing General Business Conditions Index?

Conducted by the New York Fed, the Empire State Manufacturing General Business Conditions Index is a monthly survey of manufacturers in New York State across a cross-section of industries. The survey questionnaire quizzes participants primarily on manufacturing activity, new orders, inventories, hiring activity, and changes in prices paid for purchases and prices received for sales and business outlook for the next six months. The base score for the Index is zero. Any reading above zero indicates an improving business outlook, whereas a negative score—one that comes in below zero—indicates that business conditions worsened.

Takeaways from Treasury International Capital report

In the following section, we’ll analyze the key takeaways from the Treasury International Capital report, which released on Wednesday, July 16.

 

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