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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Recovers
by Tom Moeller  January 21, 2020

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current general activity at the company level rebounded to 23.5 during January after declining to 9.1 in December. The index of expected general activity surged to 55.6, the highest level since June 2018.

Components of the company general activity index were mixed this month. New orders improved slightly but failed to break out of its recent range. A steady 33% of firms reported improved new orders while a higher 17% reported a decline. The sales or revenue indication improved m/m to the top of its recent range. The index of unfilled orders fell slightly as did the inventories measure, but it too has been trending sideways.

Most labor market measures weakened in January. The full-time permanent employment measure fell to its lowest reading in 12 months. A greatly lessened 23% of firms reported increased hiring while a higher 10% reported a decline. Part-time/temporary employee hiring also weakened to the lowest level in 12 months. Moving higher, however, was the workweek reading to the highest level since May of 2019. Strengthening was the wages & benefits measure to a record high.

Pricing power remained contained. The index of prices paid fell sharply to 25.0 and reversed its recent improvement from a July low of 13.0. A lessened 29% of firms reported higher prices while a steady four percent indicated a decline. Prices received held steady at a level improved versus its October low.

The capital expenditure measures strengthened. The physical plant measure rose to the highest level since the middle of  2018. The equipment & software expenditure reading also surged to the highest level since mid-2018.

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 sthan 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) Jan Dec Nov Jan'19 2019 2018 2017
General Activity - Company 23.5 9.1 33.0 1.9 23.4 33.5 27.2
  New Orders 16.6 15.7 22.7 1.5 16.7 24.2 19.1
  Sales or Revenue 29.2 11.2 29.9 6.1 24.0 30.8 27.8
  Inventories 2.6 5.2 2.4 5.0 4.0 5.2 3.8
  Number of Full-Time Permanent Employees 12.5 20.4 20.3 14.5 20.9 18.1 14.8
  Part-Time/Temporary/Contract Employees 7.5 9.1 11.1 6.7 14.6 15.5 12.3
  Prices Paid 25.0 34.7 29.2 26.3 25.0 28.3 21.4
  Wage & Benefit Costs 49.9 48.7 39.0 32.2 39.4 40.1 33.5
Expected General Activity - Company 55.6 53.8 46.8 25.8 41.7 49.9 49.8
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