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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Collapses
by Tom Moeller  March 24, 2020

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current general activity at the company level dropped to -12.8 during March after rising to 36.1 in February. The index of expected general activity similarly declined to -16.3 from 44.2.

Components of the company general activity index were uniformly weak this month. New orders figures collapsed to -16.4. A reduced 17% of firms reported improved new orders while a greatly increased 33% reported a decline. The sales or revenue series fell m/m to -4.9, the lowest level in over four years. The index of unfilled orders improved but the inventories measure cratered.

The labor market measures retreated in March. The full-time permanent employment measure fell to -1.7, indicating job cutbacks at the greatest rate since 2012. A greatly lessened 19% of firms reported increased hiring while a surging 20% reported a decline. Part-time/temporary employee hiring also weakened sharply to a roughly five-year low. The average workweek reading similarly collapsed as did the wages & benefits measure.

Pricing power was constrained. The index of prices paid fell sharply to 6.0, down from 34.7 just three months ago. A greatly lessened 15% of firms reported higher prices while an increased nine percent indicated a decline, the most in five years. Prices received also were significantly weakened.

The capital expenditure measures fell sharply. The physical plant measure declined to the lowest level since October. The equipment & software expenditure reading also weakened to a four-month low.

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) Mar Feb Jan Mar'19 2019 2018 2017
General Activity - Company -12.8 36.1 23.5 35.7 23.4 33.5 27.2
  New Orders -16.4 28.1 16.6 24.0 16.7 24.2 19.1
  Sales or Revenue -4.9 39.8 29.2 41.0 24.0 30.8 27.8
  Inventories -1.7 5.6 2.6 9.7 4.0 5.2 3.8
  Number of Full-Time Permanent Employees -1.7 21.5 12.5 32.3 20.9 18.1 14.8
  Part-Time/Temporary/Contract Employees -11.2 10.4 7.5 18.1 14.6 15.5 12.3
  Prices Paid 6.0 21.3 25.0 26.7 25.0 28.3 21.4
  Wage & Benefit Costs 26.6 30.7 49.9 41.6 39.4 40.1 33.5
Expected General Activity - Company -16.3 44.2 55.6 44.2 41.7 49.9 49.8
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