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Economy in Brief

Philadelphia Fed Manufacturing Index Weakens in May
by Tom Moeller  May 20, 2021

• Headline index reverses two months of increase.

• Components are mixed m/m but continue to indicate expansion.

• Prices paid continue to strengthen.

The Federal Reserve Bank of Philadelphia's Factory Sector Business Conditions Index fell sharply to 31.5 during May following a jump to 50.2 in April. A decline to 41.5 had been expected in the Action Economics Forecast Survey. The percentage of firms reporting improving conditions declined to 43.4% after surging to 58.6% in April, while the share reporting weaker conditions rose to 11.9%, the most since December.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. The reading eased to 62.7 from 63.0 in April, which was the highest level since March 1973.

Amongst the subindexes, the employment reading fell to 19.3 from the record 30.8 in April. A lessened 25.6% of survey respondents reported increased employment while a higher 6.3% reported less hiring. The unfilled orders measure surged to a near-record 41.5. New orders and shipments eased, but the average workweek rose 35.5. It reversed most of its April decline.

On the pricing front, the index of prices paid rose to 76.8 in May, the highest level since March 1980. An increased 76.8% of respondents paid higher prices while none paid less. The index of prices received strengthened to 41.0, also a 40-year high.

The Philadelphia Fed also surveys expectations for business activity in six months. The Future Activity Index declined to 52.7 in May from 66.6 in April. Expected employment, new orders and shipments fell m/m but remained in an upward trend. The future prices paid measure eased.

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) May Apr Mar May'20 2020 2019 2018
General Factory Sector Business Conditions 31.5 50.2 44.5 -43.1 7.9 9.9 20.9
ISM-Adjusted Business Conditions 62.7 63.0 61.4 42.7 52.3 55.5 57.7
  New Orders 32.5 36.0 38.2 -25.7 8.9 14.1 21.0
  Shipments 21.0 25.3 22.0 -30.3 9.7 16.9 22.8
  Unfilled Orders 40.4 27.2 19.3 -13.7 0.4 7.7 7.0
  Delivery Time  41.5 27.8 28.2 -6.7 5.1 9.4 9.5
  Inventories 25.6 17.3 14.4 11.7 -0.2 5.1 7.2
  Number of Employees 19.3 30.8 27.4 -15.3 5.0 16.9 21.5
  Average Workweek 35.5 29.8 36.4 -7.1 4.4 9.8 15.9
  Prices Paid 76.8 69.1 72.6 3.2 16.6 19.7 46.1
Expectations - General Business Conditions; Six Months Ahead 52.7 66.6 59.1 49.7 46.3 28.4 36.8
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