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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Weakens Again
by Tom Moeller  October 22, 2019

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current conditions at the company level fell to 8.7 during October after declining to 29.4 in September. Nevertheless, the index of expected general activity rose to 47.5, the highest level since May. A separate general business activity reading for the region rose to 12.6, the highest level in three months.

Components of the company general activity index were mixed this month. New orders improved to 26.9, the highest level since November. Sales rose to 25.5 and recovered half of its September decline. A steady 41% of firms reported higher sales while a reduced 15% reported a decline. Unfilled orders also rose slightly. Working lower was the inventories measure which fell to the lowest level since May following four months of moderate accumulation.

Most labor market measures weakened in October. The full-time permanent employment measure fell to its lowest reading since January. A greatly lessened 23% of firms reported increased hiring while seven percent indicated a decline. Part-time/temporary employee hiring also fell to the lowest level since January. The workweek figure continued a decline to the weakest point since the beginning of the year. It was well below the July 2018 high. The wages & benefits measure improved moderately as part of its generally sideways movement in 2019.

Pricing power eased slightly this month. The index of prices paid fell to 20.5 and reversed it recent improvement from a July low of 12.2. A lessened 25% of firms reported higher prices while a steady five percent indicated a decline. Prices received declined to the lowest level since December of last year.

The capital expenditure measures were mixed. The physical plant measure fell to the lowest level since April 2015 and was down sharply from the January 2017 high. The equipment & software expenditure reading recovered slightly following its September collapse.

The Philadelphia Fed figures are diffusion indexes which are calculated by subtracting the percent of respondents reporting decreases in business activity 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) Oct Sep Aug Oct'18 2018 2017 2016
General Activity - Company 8.7 29.4 32.5 36.4 33.6 27.3 19.7
  New Orders 26.9 9.7 9.4 14.6 24.3 19.1 15.8
  Sales or Revenue 25.5 22.5 28.5 37.9 30.9 27.9 16.1
  Inventories 0.9 5.0 5.8 -0.5 5.2 3.8 4.3
  Number of Full-Time Permanent Employees 15.9 22.1 22.1 17.2 18.2 14.8 11.7
  Part-Time/Temporary/Contract Employees 10.8 23.5 13.5 15.7 15.6 12.4 11.8
  Prices Paid 20.5 26.5 29.2 16.1 28.3 21.4 17.6
  Wage & Benefit Costs 41.9 36.1 43.2 41.7 40.0 33.4 31.2
Expected General Activity - Company 47.5 30.7 26.8 46.0 50.2 50.1 43.2
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