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Economy in Brief

Philadelphia Fed Manufacturing Index Declines in February
by Tom Moeller  February 18, 2021

• Headline index reverses part of January's strength.

• Movement amongst subindexes is mixed; employment strengthens.

• Prices paid continue to rise.

The Federal Reserve Bank of Philadelphia's Factory Sector Business Conditions Index eased to 23.1 during February following January's jump to 26.5. Despite the decline, the index remained near the highs since June. The Action Economics Forecast Survey expected a reading of 20.0. The percentage of firms reporting improving conditions eased to 34.6% from 39.5% in January, while the share reporting weaker conditions fell to a greatly lessened 11.4% from 13.0%.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. The reading fell to 59.3 but remained near the 2018 high.

Amongst the subindexes, the new orders series fell to 23.4, off from the recent high. The shipments series also declined moderately. The delivery time measure fell sharply and showed the quickest delivery speeds in three months. Working sharply higher was the average workweek measure to the highest level since May 2018. The employment reading rose to 25.3, the highest since July 2019. A slightly reduced 30.0% of survey respondents reported increased employment while a greatly lessened 4.7% reported less hiring. That was the lowest percentage since October 2019.

On the pricing front, the index of prices paid surged to 54.4, up from 15.5 twelve months earlier. It was the highest level since August 2018. A greatly increased 54.6% of respondents paid higher prices while virtually none paid less. The index of prices received declined. Though still improved versus the early-2020 low, the decline reversed January's increase.

The Philadelphia Fed also surveys expectations for business activity in six months. The Future Activity Index fell sharply to 39.5 in February, the lowest point since March 2020. The sub-indices weakened sharply with the notable exception of prices paid.

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) Feb Jan Dec Feb'20 2020 2019 2018
General Factory Sector Business Conditions 23.1 26.5 9.1 30.8 7.7 9.6 20.7
ISM-Adjusted Business Conditions 59.3 61.2 53.5 56.0 52.2 55.4 57.6
  New Orders 23.4 30.0 1.9 30.7 8.6 13.7 20.6
  Shipments 21.5 22.7 12.0 18.7 9.6 16.6 22.6
  Unfilled Orders 12.6 25.6 -0.1 6.1 0.3 7.6 6.9
  Delivery Time  15.1 30.0 17.3 1.9 5.1 9.4 9.5
  Inventories 20.0 12.6 7.7 10.1 -0.2 5.0 7.3
  Number of Employees 25.3 22.5 5.6 10.1 4.9 16.8 21.3
  Average Workweek 30.6 18.6 15.5 10.2 4.3 9.7 15.8
  Prices Paid 54.4 45.4 24.9 15.5 16.7 19.6 46.1
Expectations - General Business Conditions; Six Months Ahead 39.5 52.8 43.1 44.8 46.3 28.4 36.8
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