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Economy in Brief

Philadelphia Fed Manufacturing Index Rebounds in October
by Tom Moeller  October 15, 2020

• Headline index rose to highest level since February.

• Component strength was broad-based.

• Expectations continued to strengthen.

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index jumped in October to 32.3% after declining to 15.0% in September. This was the highest level since February and the fifth consecutive month that the index has been in positive territory, indicating business expansion. The Action Economics Forecast Survey expected m/m stability. The percentage of firms reporting an improvement in business activity rose to 47% from 33% in September while the percentage reporting weaker conditions eased to 15% from 18% in September.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same underlying components that comprise the ISM index. This measure rose sharply to a near record 61.5 in October.

Strength was exhibited broadly amongst the underlying series. The new orders index jumped to 42.6% this month and nearly set a new record. The shipments index similarly surged. More than 57% of respondents reported an increase in shipments. Unfilled orders surged and delivery times lengthened.

On the labor front, the employment index eased to 12.7% in October from 15.7% in September but was the fourth consecutive month in positive territory. The workweek index surged to 25.3% from 7.8% in September. It was the highest reading in just over two years.

The index of prices paid rose to 28.5% in October from 25.1% in September. An increased twenty-nine percent of respondents paid higher prices while none paid less. The prices received index eased slightly.

The Philadelphia Fed also surveys expectations for business activity in six months. The Future Activity Index strengthened to 62.7 in October from 56.6 in September.

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) Oct Sep Aug Oct'19 2019 2018 2017
ISM-Adjusted Business Conditions 61.5 57.3 54.1 57.7 55.5 57.7 57.2
General Factory Sector Business Conditions 32.3 15.0 17.2 6.8 9.9 20.9 27.3
  New Orders 42.6 25.5 19.0 22.5 14.1 21.0 25.3
  Shipments 46.5 36.6 9.4 19.3 16.9 22.8 26.7
  Unfilled Orders 8.3 0.4 -0.6 14.5 7.7 7.0 11.8
  Delivery Time  20.5 12.2 7.3 9.3 9.4 9.5 10.6
  Inventories -2.5 -10.8 -1.9 5.4 5.1 7.2 2.8
  Number of Employees 12.7 15.7 9.0 27.1 16.9 21.5 16.1
  Average Workweek 25.3 7.8 11.3 10.6 9.8 15.9 14.9
  Prices Paid 28.5 25.1 15.3 15.0 19.7 46.1 30.4
Expectations - General Business Conditions; Six Months Ahead 62.7 56.6 38.8 32.6 28.4 36.8 47.1
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