Empire State Manufacturing Index Signals a Struggling Industrial Sector

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The NY Empire State Manufacturing Survey is a monthly survey of New York-area manufacturers. Firms report on how business conditions have changed for a number of indicators, including production, new orders, employment, prices and company outlook. The Index is a regional survey, but its key indexes are highly correlated with state-level measures of business activity and employment. According to the Empire Manufacturing Index, general business activity in April decreased to 6.56 from 20.21 in March. This is worse than the expected estimate of 18.0. This is essentially bearish for the manufacturing sector and negative or general economic growth in the United States. According to
the report
, April's Empire State Manufacturing Survey indicates that manufacturing activity in New York State improved only modestly. The new orders and shipments indexes also remained positive, but showed only a small increase in orders and shipments. The prices paid index inched downward but remained high, and the prices received index climbed six points to 19.3. The index for number of employees rose to its highest level in nearly a year, indicating a significant increase in employment levels, while the average workweek index fell to a level that indicated only a small increase in hours worked. Future indexes remained quite positive, suggesting a strong and persistent degree of optimism about the six-month outlook.

ACTION ITEMS:

Bullish:
Traders who believe that the Empire State Manufacturing Index is a leading indicator for the US economy, you might want to consider the following trades:
  • Short general industrial companies like Illinois Tool Works ITW or Caterpillar CAT as these companies will not benefit from decreasing industrial production.
  • Also, shortConsumer Discretionary companies like Target TGT or the Consumer Discretionary ETF XLY
Bearish:
Traders who do not believe that the Empire State Manufacturing Index is a leading indicator for the US economy, you may consider alternative positions:
  • Long Consumer Staple companies like Procter & Gamble PG and Colgate CL because even if the economy is struggling, people still need to buy staple products like shampoo and toothpaste.
  • Also, long big-ticket appliance makers like Whirlpool WHR if the manufacturing trend is worse-than-expected, because companies like these may be oversold.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.
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