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Economy in Brief

Philadelphia Fed Manufacturing Index & Expectations Backpedal
by Tom Moeller  August 15, 2019

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index declined to 16.8 in August after rising to 21.8 in July. A reading of 10.0 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 37% in August from 35% in July. The percentage reporting weaker conditions increased to 21% from 13%.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. It eased to 55.8 this month, but remained up from the February low of 51.9. 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 mixed in August. The new orders and unfilled order each improved. The shipments and delivery times measures fell, the latter indicating the quickest product delivery speeds in three months. The inventories measure was fairly steady m/m at the highest level since March.

The employment index reversed it July strengthening and declined to the lowest level since November 2016. A greatly lessened 25% of respondents reported an increased level of hiring, while reduced hiring surged to 21% of respondents, the most in three years. 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 fell sharply to a six-month low.

The index of prices paid reversed its July improvement and fell to the lowest level since July 2016. A lessened 25% of respondents reported paying higher prices while a still high 12% reported lower prices. The index of prices received rose and added to July's improvement.

The Philadelphia Fed also constructs indexes of future activity. The General Business Conditions series reversed just some of its sharp July improvement. The future new orders and delivery times indexes fell but shipments and inventories rose. The employment index held steady but remained improved versus its April low. The expected prices paid index 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.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Aug Jul Jun Aug'18 2018 2017 2016
General Factory Sector Business Conditions 16.8 21.8 0.3 13.0 21.1 27.3 4.9
ISM-Adjusted Business Conditions 55.8 58.6 55.0 56.6 57.7 57.3 48.2
  New Orders 25.8 18.9 8.3 15.3 21.0 25.3 5.0
  Shipments 19.0 24.9 16.6 19.1 22.8 26.8 6.9
  Unfilled Orders 9.1 3.7 10.2 5.6 7.1 11.9 -5.6
  Delivery Time 9.3 15.0 15.6 7.5 9.5 10.6 -4.6
  Inventories 8.7 8.1 2.4 13.9 7.4 2.9 -9.6
  Number of Employees 3.6 30.0 15.4 14.5 21.6 16.1 -5.6
  Average Workweek 6.8 23.0 7.3 11.9 15.9 14.9 -5.4
  Prices Paid 12.8 16.1 12.9 55.2 46.4 30.4 13.5
Expectations - General Business Conditions; Six Months Ahead 32.6 38.0 21.4 37.2 36.9 47.1 33.7
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