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Economy in Brief

Philadelphia Fed Manufacturing Activity Strengthens
by Tom Moeller  June 18, 2020

• Business conditions index is positive for first time since February.

• Component gains are broad-based.

• Expectations improve sharply.

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index increased to 27.5 during June from -43.1 in May. An index of -25.0 had been expected in the Action Economics Forecast Survey. The positive reading followed three straight months of negative figures. These figures are diffusion indexes where readings above zero indicate expansion. The percentage of firms reporting an improvement in business activity jumped to 46% this month. The percentage reporting weaker conditions fell sharply to 18.5%.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. It rose to 53.7 this month, also the highest level since February. Over the past dozen years, there has been a 57% correlation between the ISM-Adjusted Philadelphia Fed Index and q/q change in real GDP.

Among the underlying series of the survey, which are sampled separately from the composite index, the new orders, shipments and unfilled orders figures posted the strongest rebounds. The delivery times measure also rose, indicating slower rates of product delivery. Inventories fell, however, to neutral.

On the labor front, the employment index remained negative, though its deterioration has lessened. An improved twelve percent of respondents reported an increased level of hiring while a smaller 16% reported a decline. The average workweek measure was little changed, but was much improved compared to the record low in April.

The index of prices paid rose to the highest level in four months. A steady16% of respondents paid higher prices while a reduced five percent paid less. The index of prices received jumped to the highest level since February following two months of negative readings.

The Philadelphia Fed also constructs indexes of future activity. The expected General Business Conditions series surged to its highest level since October 1991. The future new orders, shipments and unfilled orders rose sharply and employment rose moderately. Prices paid jumped to the highest level in six months.

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) Jun May Apr Jun'19 2019 2018 2017
General Factory Sector Business Conditions 27.5 -43.1 -56.6 1.5 9.9 20.9 27.3
ISM-Adjusted Business Conditions 53.7 42.7 29.7 54.9 55.5 57.7 57.2
  New Orders 16.7 -25.7 -70.9 8.0 14.1 21.0 25.3
  Shipments 25.3 -30.3 -74.1 17.0 16.9 22.8 26.7
  Unfilled Orders -0.1 -13.7 -13.5 9.0 7.7 7.0 11.8
  Delivery Time  0.4 -6.7 4.1 13.4 9.4 9.5 10.6
  Inventories 0.0 11.7 -10.2 2.7 5.1 7.2 2.8
  Number of Employees -4.3 -15.3 -46.7 16.4 16.9 21.5 16.1
  Average Workweek -6.5 -7.1 -54.5 8.0 9.8 15.9 14.9
  Prices Paid 11.1 3.2 -9.3 13.7 19.7 46.1 30.4
Expectations - General Business Conditions; Six Months Ahead 66.3 49.7 43.0 24.2 28.4 36.8 47.1
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