3/17/2015
By Jennifer Coombs

According to the New York Federal Reserve district, business activity is continuing to expand at a modest pace for New York manufacturers. The Empire State Manufacturing Index for March came in at 6.90, which is marginally lower than the February reading of 7.78. One of the major laggards for the month was in new orders at -2.39 from 1.22 in February. Weak orders are not a plus for employment though the March employment index did accelerate substantially to 18.56 compared to 10.11 in February for the best reading since May 2014. Yet, how long this can hold is in doubt especially given the slowing the last 2 months in the general 6-month outlook, which rose more than 5 points to 30.72, but the last 2 readings are the weakest since second quarter 2013. The Empire State reading kicks off the first monthly reading on the manufacturing sector, and as expected, it should be a precursor to lighter manufacturing activity in March.

In addition to the pullback noted in the Empire State Manufacturing data, the overall manufacturing sector is continuing to struggle in 2015, as noted in the February report on manufacturing production and capacity. Industrial production in the month of February edged slightly higher by 0.1% month-over-month after falling by 0.3% in January, while market expectations were for a 0.3% gain. Manufacturing activity declined by 0.2% in February after falling 0.3% in the prior month for the third consecutive monthly decline. This was substantially worse than economist expectations for a 0.1% increase. The motor vehicles and parts industry posted a notable loss of 3.0% in February, the largest decrease among durable goods manufacturers; most of the other industries moved down more than 0.5%. Only the aerospace and miscellaneous transportation equipment industry recorded a sizable increase in production, advancing 1.2%. Mining activity also dropped again in February by 2.5% after a 1.3% decline in January, while utilities surged 7.3% after increasing by only 1.0% the month before. Ultimately, overall capacity utilization slipped to 78.9% from 79.1% in January. However, utilization is still much higher than that of prior years as the chart below indicates.

In the same sleeve as production activity, the housing market appears to be stalling from its earlier strength. There continues to be a lack of first-time home buyers in the market which is weighing on the National Association of Home Builders (NAHB) index for March, which slowed by 2 points to an 8-month low of 53. Particular weakness was found in the traffic component which was down 2 points to 37, which is a 9-month low and directly reflects the lack of first-time buyers. Why is there still a lack in interest in buying a home? Some economists are speculating that it's still tied to the bubble collapse in 2008, which may have lowered the appeal of buying a home as a lifelong investment. This data always precedes the housing starts data by one day.

Jennifer Coombs
Wall Street Strategies

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