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Economy in Brief

Philadelphia Fed Manufacturing Index Drops in August for Fourth Straight Month
by Tom Moeller  August 19, 2021

• Headline index falls to lowest level since December.

• New orders & employment improve but shipments decline sharply.

• Prices paid rise slightly from six-month low.

• Expectations continue to weaken.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index fell sharply to 19.4 in August from 21.9 in July. The index peaked at 50.2 in April. The index has fallen to the lowest level since December. A reading of 23.8 had been expected by the Action Economics Forecast Survey. The percentage of firms reporting improving conditions declined to 28.0% in August from 33.0% in July. The share reporting weaker conditions also fell to 8.5% from 11.2%. The share reporting no change increased to 59.3% from 51.4%.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. The reading declined to 57.4 in August from 59.0 in July. It peaked at 63.0 in April.

Performance of the subindexes was mixed in August. The new orders index rose modestly to 22.8 from 17.0 in July, but remained below its October 2020 peak of 42.6. The shipments index fell to 18.9, an eight month low. The unfilled orders, delivery times and inventory indexes also fell.

The employment index improved to a record 32.6 from 29.2 in July. Thirty-nine percent of respondents reported more hiring in August. Seven percent of firms lowered employment compared to 8.9% the previous month. The average workweek reading rose from 18.4 to 24.5, a three-month high.

On the pricing front, the index of prices paid strengthened to 71.2 from 69.7, but remained below the June high of 80.7 which was the highest reading since 1979. Seventy-four percent of respondents reported paying higher prices versus 72.1% in July while a steady 2.6% reported paying less. The index of prices received strengthened to a near-record 53.9 from 46.8 in July.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity index plummeted to 33.7 in August from 48.6 in July. It was the lowest level since October 2019. Expected new orders, shipments and employment all collapsed. The expected prices paid index also fell but prices received rose sharply.

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) Aug Jul Jun Aug'20 2020 2019 2018
General Factory Sector Business Conditions 19.4 21.9 30.7 17.2 7.9 9.9 20.9
ISM-Adjusted Business Conditions 57.4 59.0 62.5 54.1 52.3 55.5 57.7
  New Orders 22.8 17.0 22.2 19.0 8.9 14.1 21.0
  Shipments 18.9 24.6 27.2 9.4 9.7 16.9 22.8
  Unfilled Orders 7.0 19.0 22.5 -0.6 0.4 7.7 7.0
  Delivery Time  26.3 33.3 29.3 7.3 5.1 9.4 9.5
  Inventories -18.1 -4.0 17.9 -1.9 -0.2 5.1 7.2
  Number of Employees 32.6 29.2 30.7 9.0 5.0 16.9 21.5
  Average Workweek 24.5 18.4 20.1 11.3 4.4 9.8 15.9
  Prices Paid 71.2 69.7 80.7 15.3 16.6 19.7 46.1
Expectations - General Business Conditions; Six Months Ahead 33.7 48.6 69.2 38.8 46.3 28.4 36.8
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