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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Moderates; Pricing Power Diminishes
by Tom Moeller  July 24, 2018

The Federal Reserve Bank of Philadelphia's Nonmanufacturing Business Index of current conditions at the company level fell to 35.5 in July and backed away from its three-year high. A lessened fifty-three percent of respondents reported an increase in current activity while an increased 17% reported a decline.

The expectations index at the company level for July fell to 41.5 and reversed its June surge to 58.2. It was the lowest reading in three months and close to the weakest figure since November 2016.

The component series were mixed. The new orders index declined to the lowest level in three months, though it remained sharply improved y/y. The sales or revenue index increased, however, to the highest level since January of last year. Inventories held fairly steady m/m, showing a firm rate of accumulation. The unfilled orders index declined sharply to the lowest level since February of last year.

On the labor front, the number of full-time permanent employees index surged to a record high. Thirty-five percent of companies added jobs while six percent shed them. The index of part-time/temporary employment declined sharply. The average workweek reading rose to the highest level since April. The index of wage & benefit costs eased slightly m/m, but was just below the record high.

The index of prices paid weakened significantly. It remained, however, in its yearlong upward trend. A lessened 32% of respondents paid higher prices while four percent paid less. The prices received index backed away from near the record high to the lowest level in three months.

The index for capital spending on equipment and software surged to a record high. The capital expenditures for facilities index weakened and remained in a yearlong downtrend.

The Philadelphia Fed figures are diffusion indexes which are calculated by subtracting the percent of respondents reporting poorer business conditions from those reporting improvement. So, readings above zero indicate more positive than negative responses. These indexes have a good correlation with growth in the series covered. The data are available in Haver's SURVEYS database.

Federal Reserve Bank of Philadelphia: Nonmanufacturing Business Outlook Survey (Diffusion Index, SA) Jul Jun May Jul'17 2017 2016 2015
General Activity - Company 35.5 40.7 39.5 21.5 27.3 19.7 31.3
  New Orders 31.5 35.5 36.2 11.5 19.1 15.7 21.8
  Sales or Revenue 35.6 24.6 33.7 22.5 27.9 16.2 23.8
  Inventories 5.4 5.1 8.2 4.2 3.8 4.4 5.2
  Number of Full-Time Permanent Employees 29.5 19.9 7.7 19.2 14.8 11.7 15.6
  Prices Paid 28.6 36.6 33.8 21.1 21.4 17.5 19.3
  Wage & Benefit Costs 47.5 51.1 46.4 31.2 33.4 31.2 32.5
Expected General Activity - Company 41.5 58.2 45.3 43.4 49.9 43.0 53.8
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