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Economy in Brief

Philadelphia Fed Manufacturing Index Rebounds
by Tom Moeller  May 16, 2019

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index increased to 16.6 during May after falling to 8.5 in April. It was the  highest index level since January. A reading of 9.5 had been expected in the Action Economics Forecast Survey. These figures are diffusion indexes where readings above zero indicate expansion. The percentage of firms reporting an improvement in business activity fell to 25% in May from 32% in April. The percentage reporting weaker conditions declined to nine percent from 23%.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. It improved to 54.6 and recovered a decline to 54.1 in April. Nevertheless, the index remained sharply below its high of 61.1 reached twelve months ago. Over the past eleven years, there has been a 65% correlation between the quarterly ISM-adjusted Philadelphia Fed Index and q/q real GDP growth.

Performance amongst the sampled series was mixed this month. Improvement in the shipments, unfilled orders and delivery times indexes was countered by declines in the new orders and inventory series.

The employment index also increased to the highest level since December. A steady 27% of respondents reported an increased level of hiring while a lessened eight percent reported fewer jobs. During the last ten years, there has been a 58% correlation between the jobs index and the m/m change in factory sector employment. The average workweek reading was little-changed at a level that was the highest since October. It nevertheless remained well below the high registered 12 months ago.

The index of prices paid increased slightly but remained sharply below the high reached last July. Thirty-two percent of respondents reported paying higher prices while nine percent reported a decline. The index of prices received countered the rise and declined to the lowest level since December 2017.

The Philadelphia Fed also constructs indexes of future activity. The General Business Conditions series was little-changed m/m but remained sharply below the high reached in March 2017. The future unfilled orders index declined precipitously m/m, but most other sub-series improved.

The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern Pennsylvania, southern New Jersey and Delaware). The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The ISM-adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes: new orders, shipments, employment, delivery times and inventories with equal weights (20% each). Each ISM-adjusted index is the sum of the percent responding "higher" and one-half of the percent responding "no change."

The figures from the Philadelphia Federal Reserve dating back to 1968 can be found in Haver's SURVEYS database. The expectation from the Action Economics Forecast Survey is available in AS1REPNA.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) May Apr Mar May'18 2018 2017 2016
General Factory Sector Business Conditions 16.6 8.5 13.7 32.3 21.1 27.3 4.9
ISM-Adjusted Business Conditions 54.6 54.1 54.7 61.1 57.7 57.3 48.2
  New Orders 11.0 15.7 1.9 38.5 21.0 25.3 5.0
  Shipments 27.6 18.4 20.0 26.2 22.8 26.8 6.9
  Unfilled Orders 1.9 0.4 3.1 13.6 7.1 11.9 -5.6
  Delivery Time 3.4 -5.1 8.8 16.4 9.5 10.6 -4.6
  Inventories -3.1 2.6 17.2 8.0 7.4 2.9 -9.6
  Number of Employees 18.2 14.7 9.6 28.6 21.6 16.1 -5.6
  Average Workweek 10.9 11.2 10.6 31.3 15.9 14.9 -5.4
  Prices Paid 23.1 21.6 19.7 51.0 46.4 30.4 13.5
Expectations - General Business Conditions; Six Months Ahead 19.7 19.1 21.8 38.8 36.9 47.1 33.7
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