June 15, 2010 at 16:08 PM EDT
Empire State Manufacturing Survey June 2010
empire state manufacturing survey June 2010
Don't believe the hype!

The Empire State Manufacturing Survey might have offered another data point showing a continuing trend of manufacturing expansion, but a little inside baseball insight seems to show early signs of a stagnating sector.


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Empire State Manufacturing Survey June 2010

New York Fed Empire State Manufacturing SurveyThe Empire State Manufacturing Survey extended its string of positive readings to eleven months in June, as the General Business Conditions Index marked 19.6. The mark was short of consensus expectations for 21.0 and just slightly above May's reading of 19.1. However, the mere fact that the pace of expansion did not deteriorate again this month helped support shares this morning.

Looking deeper into the data, a supplemental series of questions posed to respondents indicate nearly twice as many manufacturers are increasing spending on capital equipment versus those who are not (specifically on computers and software, not structures - good news for Nasdaq: DELL, Nasdaq: MSFT, Nasdaq: ADBE, Nasdaq: NVDA, NYSE: HPQ, Nasdaq: SYMC).

New orders picked up slightly as the component index edged up to 17.5. This was especially reassuring information, given last month's dip in the New Orders Index. The Inventories Index was near zero, indicating that inventories have stabilized. This may be an indicator of future stabilization in productivity and capacity utilization as well (this data reported tomorrow).

Unfortunately, the index measuring numbers of employees at respondent firms dropped ten points, as the pace of hiring in manufacturing may be slowing. The pace of increase in prices paid also started to slow, as the component index slipped from 44.7 to 27.2, another sign of a slowing pace of expansion.

The future outlook indices all remained positive, but eased a bit. The Future Business Conditions Index edged down to 40.7, marking the second consecutive month of tempering enthusiasm. The index for expected employment stuck at 28.4, while capital expenditure expectations fell, though sticking in positive ground. Even technology spending expectations dropped when looking forward.

These are all indications of a stabilizing economy, but stability is not what we want; we want ongoing growth. That said, I admit that I have to reach to see solid evidence in this report of economic stagnation. That stagnation is, however, my expectation for the near-term. The Philly Fed Survey is coming up later this week, offering further insight into what has been the strongest sector of the economy, manufacturing.

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Relevant tickers: General Electric (NYSE: GE), Ford (NYSE: F), Honeywell (NYSE: HON), Caterpillar (NYSE: CAT), Newell Rubbermaid (NYSE: NWL), Whirlpool (NYSE: WHR), Lennox Int'l (NYSE: LII), Helen of Troy (Nasdaq: HELE), Deer (Nasdaq: DEER), United Technologies (NYSE: UTX), 3M (NYSE: MMM), Danaher (NYSE: DHR), PPG Industries (NYSE: PPG), Cooper Industries (NYSE: CBE), Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD), Tyco (NYSE: TYC), Cummins (NYSE: CMI), Pall (NYSE: PLL), Briggs & Stratton (NYSE: BGG), Toyota (NYSE: TM), Honda Motor (NYSE: HMC), SORL (Nasdaq: SORL), Sony (NYSE: SNE), Panasonic (NYSE: PC).

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