Manufacturing Activity Faced Margin Pressure in Nov.

Nov 18, 2015

Business activity improved in November

According to the Empire State Manufacturing Survey (or ESMS), business activity improved to -10.74 points in November, compared to -11.36 points in October 2015. Although it edged up 0.62 points in November, the index has recorded a fourth consecutive month in negative territory.

The Industrial Select Sector SPDR ETF has increased 2.3% over the past month as of November 16, 2015, even with decreasing business activity. Industrial companies General Electric, Boeing Company, 3M, and Honeywell International rose by 4.7%, 4.3%, 6.9%, and 5.9%, respectively, over the past month as of November 16, 2015.

New orders and shipment remain negative in November

The new orders and shipment index continued to decline, standing at -11.82 points and -4.10 points, respectively, in November. With the decline in new orders, production activity may be lower and may result in job cuts by manufacturers. Unfilled orders and delivery time fell to 18.18 and 10.91 points, respectively, in November.

The production capacity is not fully utilized, with a lower order book and increased production costs for manufacturers. Input prices rose to 4.55 and selling prices fell to -4.55, keeping manufacturers margins under pressure.

The labor condition has also worsened as the index for the number of employees fell to -7.27, and the average workweek index remained negative at -14.55 points.

Future expectation are subdued

Expectations about future market conditions remained subdued in November, falling to 20.33 points from 23.36 in October. The capital spending index was little changed at 12.7, and the technology spending index fell to 1.8 in November.

The Empire State survey highlights the weakening of manufacturing activity in the economy with a slowdown in orders and lower selling prices. With the subdued outlook for manufacturing, the Fed Reserve may delay the rate hike decision during the FOMC (Federal Open Market Committee) meeting this December.

Source: Market Realist