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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Continues to Moderate
by Tom Moeller  June 25, 2019

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current conditions at the company level declined to 12.2 during June, a second month of sharp decline. These figures remain below the high of 45.7 reached nine months earlier. Sentiment about the future also soured. The index of expected conditions declined to 26.4, the lowest reading since January. The general business activity reading for the region fell to 8.2 and was below the high of 43.2 in May of last year.

Weakness in the overall survey this month reflected mixed performance in the sub-series. The sales measure weakened to a five-month low. The new orders, unfilled orders and inventories series rose slightly following sharp declines in May.

The labor market measures were mixed in June. The full-time permanent employment and part-time/temporary employment readings improved moderately. Thirty-one percent of firms reported higher full-time employment while seven percent reported a decline. The workweek figure continued to decline versus its March high. The wages & benefits measure increased and has been trending higher since January.

On the pricing front, the prices paid measure weakened m/m and remained well below the 2018 high. Twenty-seven percent of firms reported paying higher prices for components while four percent paid less. Also suggestive of a weak pricing environment during June, the prices received index fell sharply to a six-month low.

The capital expenditure measure for equipment & software improved sharply m/m to a seven-month high. The physical plant measure held steady m/m, but has been trending lower since January 2017.

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) Jun May Apr Jun'18 2018 2017 2016
General Activity - Company 12.2 28.1 39.2 39.0 33.6 27.3 19.7
  New Orders 14.3 10.6 25.4 31.4 24.3 19.1 15.8
  Sales or Revenue 17.0 26.6 37.2 27.1 30.9 27.9 16.1
  Inventories 2.9 -3.2 0.8 5.1 5.2 3.8 4.3
  Number of Full-Time Permanent Employees 23.8 20.5 18.3 20.5 18.2 14.8 11.7
  Part-Time/Temporary/Contract Employees 20.2 11.3 24.3 20.9 15.6 12.4 11.8
  Prices Paid 22.3 25.9 27.1 32.6 28.3 21.4 17.6
  Wage & Benefit Costs 43.6 38.9 38.2 48.9 40.0 33.4 31.2
Expected General Activity - Company 26.4 56.9 44.0 55.6 50.2 50.1 43.2
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