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Economy in Brief

Philadelphia Fed Manufacturing Index Slips During November
by Tom Moeller  November 19, 2020

• Headline index reverses some of October's improvement.

• Component declines are broad-based.

• Expectations weaken.

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index has fallen in November to 26.3% after rising to 32.3% in October. The index has now been in positive territory for six consecutive months, indicating business expansion. The Action Economics Forecast Survey expected a reading of 22.0. The percentage of firms reporting an improvement in business activity fell to 42% from 47% in October while the percentage reporting weaker conditions held steady this month at 15%.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same underlying components that comprise the ISM index. This measure weakened to 60.1 from the near record 61.5 in October.

The new orders index fell to a still strong 37.9% after strengthening to 42.6% last month. The shipments index similarly declined. A lessened 41% of respondents reported an increase in shipments. The delivery time index also recorded a slight decline. Working the other way, unfilled orders surged and inventories rose.

On the labor front, the employment index improved to 27.2% in November from 12.7% in October. It was the fifth consecutive month in positive territory and the highest level since July 2019. The average workweek index rose slightly to 25.7% from 25.3% in October. It remained the highest reading in just over two years.

The index of prices paid strengthened 38.9% in November from 28.5% in October. It was the highest level in exactly two years. An increased 39% of respondents paid higher prices while none paid less. The prices received index surged to the highest level since February 2019.

The Philadelphia Fed also surveys expectations for business activity in six months. The Future Activity Index weakened to 44.3% in November, a three-month low. Component declines were widespread, including new orders, shipments and employment.

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) Nov Oct Sep Nov'19 2019 2018 2017
ISM-Adjusted Business Conditions 60.1 61.5 57.3 54.5 55.5 57.7 57.2
General Factory Sector Business Conditions 26.3 32.3 15.0 8.4 9.9 20.9 27.3
  New Orders 37.9 42.6 25.5 10.1 14.1 21.0 25.3
  Shipments 24.9 46.5 36.6 13.4 16.9 22.8 26.7
  Unfilled Orders 22.2 8.3 0.4 8.2 7.7 7.0 11.8
  Delivery Time  18.0 20.5 12.2 9.7 9.4 9.5 10.6
  Inventories 1.8 -2.5 -10.8 -3.5 5.1 7.2 2.8
  Number of Employees 27.2 12.7 15.7 19.7 16.9 21.5 16.1
  Average Workweek 25.7 25.3 7.8 6.8 9.8 15.9 14.9
  Prices Paid 38.9 28.5 25.1 8.5 19.7 46.1 30.4
Expectations - General Business Conditions; Six Months Ahead 44.3 62.7 56.6 34.4 28.4 36.8 47.1
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