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Economy in Brief

Philadelphia Fed Manufacturing Index Strengthens
by Tom Moeller  July 18, 2019

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index increased to 21.8 in July after June's decline to 0.3. It was the highest index level in twelve months. A reading of 5.0 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 rose to 35% in July from 31% in June. The percentage reporting weaker conditions lessened considerably to 13% from 21%.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. It strengthened to 58.6 this month, the highest level since June of last year. Nevertheless, the index remained below its expansion high of 61.1 reached in May of 2018. Over the past twenty years, there has been a 61% correlation between the ISM-adjusted Philadelphia Fed Index and q/q real GDP growth.

Performance amongst the sampled series was mostly positive. The new orders, shipments and inventories readings each showed material gains. The delivery times measure was fairly steady, indicating the slowest product delivery speeds since early last year. The unfilled orders measure declined.

The employment index surged to the highest level since October 2017, which was a record high. A much stronger 36% of respondents reported an increased level of hiring, while a lessened six percent reported fewer jobs. During the last twenty years, there has been a 77% correlation between the jobs index and the m/m change in factory sector employment. The average workweek measure also surged.

The index of prices paid edged higher but remained sharply below the high reached last July. A steady 29% of respondents reported paying higher prices while a lessened 13% reported lower prices paid. The index of prices received rebounded modestly following a sharp decline during June.

The Philadelphia Fed also constructs indexes of future activity. The General Business Conditions series improved sharply. The future new and unfilled orders indexes were much stronger as were inventories. The employment index eased m/m but was improved versus its April low. The prices paid and received indexes rose moderately.

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.

The latest Fed's latest Beige Book covering regional economic conditions is available here.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Jul Jun May Jul'18 2018 2017 2016
General Factory Sector Business Conditions 21.8 0.3 16.6 24.3 21.1 27.3 4.9
ISM-Adjusted Business Conditions 58.6 55.0 54.6 58.2 57.7 57.3 48.2
  New Orders 18.9 8.3 11.0 24.9 21.0 25.3 5.0
  Shipments 24.9 16.6 27.6 23.6 22.8 26.8 6.9
  Unfilled Orders 3.7 10.2 1.9 8.9 7.1 11.9 -5.6
  Delivery Time 15.0 15.6 3.4 10.5 9.5 10.6 -4.6
  Inventories 8.1 2.4 -3.1 12.6 7.4 2.9 -9.6
  Number of Employees 30.0 15.4 18.2 18.1 21.6 16.1 -5.6
  Average Workweek 23.0 7.3 10.9 14.4 15.9 14.9 -5.4
  Prices Paid 16.1 12.9 23.1 60.0 46.4 30.4 13.5
Expectations - General Business Conditions; Six Months Ahead 38.0 21.4 19.7 30.4 36.9 47.1 33.7
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