An Early Winter In New York?

An Early Winter In New York?

by David Reavill

Big changes this time of the year for those of us in the Northeast. It won’t be long until the trees turn colors, the nights turn chilly, and fall will be in the air.

But even the most seasoned “Yankee” had to be caught off guard by the information that came across our desks yesterday. This report has the rather pedestrian name, “The Empire State Manufacturing Survey.”

I can’t remember when something fascinating came from the Empire State Manufacturing Survey. It’s one of those regular reports that floats across the news wires to be glanced at and then posted to the archives. But all that changed yesterday.

If New Yorkers thought Hurricane Sandy was a big deal a decade ago, they better batten down their hatches, another storm is on the way.

So, what is this “Empire State Manufacturing Survey?” you may be asking. Just as the name implies, it’s a survey by the New York Regional Federal Reserve of businesses and industries in their area.

All Fed Branches do such a survey, but the New York Branch is perhaps the most significant because of its location. After all, New York is one of the top finance, media, and technology centers in America and the world.

The health of the New York Business community is essential to the nation’s overall health. New York represents 8% of the nation’s Gross Domestic Product. And for the nation’s economy to continue recovering from the Pandemic Lock-Down, New York must lead the way.

Until now, New York has done a pretty good job leading the recovery. It was one of the first sections of the country to recover from Covid. By July 2020, New York business was as optimistic as ever, looking forward to brighter times ahead.

Until the skyrocketing cost of gasoline and the resulting inflation took hold, for two months this year, March and May, New York Businesses have wobbled as they sought to manage those high costs. By June and July, everything seemed back on Track, and that cocky New Yorkers’ attitude was back.

But the recovery seemed to fade a couple of weeks ago. We have headed down once again in this up-and-down post-Covid economy. Only this time, the magnitude of the drop is stunning. This Survey is at a level only exceeded once in its 22-year history. And that was during the Pandemic itself.

The other time the Survey came close to this level was during the Great Financial Crisis of 2008. And that time, it took the Empire Manufacturing survey nearly a year and a half to go from expansion to this level of contraction. This time the Empire Survey declined to that level in a single month. The largest, most significant decline outside of outright economic lockdown.

Respondents reported lower levels in General Business Conditions, New Orders, and Shipments. And all three indicators went from solidly positive to the worst level ever seen, aside from the Pandemic.

So, what are we to make of all this? Do I think this is the end of our financial world?

No, I don’t.

I’ll need to see a couple more indicators before I’m ready to throw in the towel on this expansion. After all, this is only one Survey. And no matter how important it is in the country’s economy right now, it stands alone.

However, what it does tell us, is just how fragile this recovery is. These are actual real-life businessmen and women describing their current conditions. They are telling us that business is hurting right now. Orders are drying up, delayed shipments, and they are struggling. These people know and have their finger on the pulse of commerce. When they turn this downcast, we will do well to pay close attention.

Right now, business is walking a tightrope suspended between higher costs, inflation on the one hand, and less activity, recession on the other.

We know that Washington, particularly the Administration and the Federal Reserve, relies principally on raw data to develop monetary policy. As they like to say, they’re “data-driven.” So when the President pushes the country toward “green energy.” Or the Federal Reserve raises interest rates. They’re looking at those computer-based Macro Models.

Models, although highly accurate, lack the sensitivity of a shopkeeper or a local merchant. Business people know minute-by-minute how their business is performing.

They live in a different world from Washington, DC.

For Washington, the day of reckoning won’t come until the next election, months away.

For these Empire States businesses, their bills come due tomorrow.

Economic News

This morning’s big news is coming from the earnings desk, where 52 companies are scheduled to report their results. Over the next few days, we will see most of the major retail stores deliver their earnings. And as the consumer represents the heart and soul of this economy, these are important data points.

Already, we’re seeing mixed results from the retailers. As number one, Walmart is getting a positive response from Wall Street, while highly leveraged Home Depot is not faring well.

The significant moves so far have been for a couple of e-commerce-centered stocks. Global E Online, one of the top eCommerce sites, trades higher on their earnings. While Tremor International, an eCommerce advertising site, is currently down “biggly.”

Also performing well is Pagaya Technology, an online lending company. At the same time, World Wide Wrestling is unchanged.

Turning now to economics, in just a few minutes, we will get the latest report on Real Estate Construction. With both Building Permits and New Homes Starts. We will watch if that almost perfect correspondence between interest rates and new Real Estate Construction continues. It’s almost always the case that as the Fed raises rates, new real estate starts fall. This year, rates have gone up; New Home Starts have fallen 13% from their March highs.