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Economy in Brief

Philadelphia Fed Manufacturing Index Backpedals in October
by Tom Moeller  October 21, 2021

• Index for general activity declines even as orders and employment rise.

• Inventories and average workweek move down.

• Price index rebounds.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index weakened roughly seven points in October to 23.8 from 30.7 in September. The index peaked at 50.2 in April. A reading of 24.0 had been expected by the Action Economics Forecast Survey. The percentage of firms reporting improving conditions rose to 40.3% this month from 33.6% in September but the share reporting weaker conditions surged to 16.5% from 2.9% in September. The share reporting no change fell to 41.2% from 60.6% in September.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. That reading rose to 63.6 from 59.4 in September. It was the highest level since March 1973.

Performance of the subindexes was mixed. The new orders index roughly doubled m/m, rising to 30.8 in October, a five-month high. The delivery times index also surged to 32.2 from 20.4, the highest level in three months. The shipments index edged up to 30.0 in October after jumping to 29.9 in September. The unfilled orders rose to 12.7 but remained down from a high of 40.4 in May. The inventory index eased to 18.8 after rebounding in September to 19.2, following a sharp August decline.

The employment index strengthened to 30.7 in October from 26.3 in September. A steady 31.2% of respondents reported more hiring this month while a negligible 0.5% lowered employment. The average workweek reading fell to 27.8 this month from a four-month high of 29.3 in September.

The index of prices paid rose to 70.3 in October after easing to 67.3 in September. Seventy-three percent of respondents reported paying higher prices while 3.0% paid less. The index of prices received eased to 51.1 this month from 52.9 last month. The figure was a near-record 53.9 in August.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity index improved to 24.2 after plummeting to 20.0 in September from 33.7 in August. Expected new orders dropped to 26.2 in October from 31.1 in September. The shipments reading fell sharply to 30.5, the lowest level since April 2019 while the employment reading eased to 37.5, the lowest level since February. The expected prices paid index rose to a four-month high of 64.1 but prices received declined to 58.8, the lowest level since July. The capital expenditures rose to 32.4 after plummeting to 23.6 in September. The index reached a high  of 41.2 in July.

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'20 2020 2019 2018
General Factory Sector Business Conditions 23.8 30.7 19.4 32.3 7.9 9.9 20.9
ISM-Adjusted Business Conditions 63.6 59.4 57.4 61.5 52.3 55.5 57.7
  New Orders 30.8 15.9 22.8 42.6 8.9 14.1 21.0
  Shipments 30.0 29.9 18.9 46.5 9.7 16.9 22.8
  Unfilled Orders 12.7 5.4 7.0 8.3 0.4 7.7 7.0
  Delivery Time  32.2 20.4 26.3 20.5 5.1 9.4 9.5
  Inventories 18.8 19.2 -18.1 -2.5 -0.2 5.1 7.2
  Number of Employees 30.7 26.3 32.6 12.7 5.0 16.9 21.5
  Average Workweek 27.8 29.3 24.5 25.3 4.4 9.8 15.9
  Prices Paid 70.3 67.3 71.2 28.5 16.6 19.7 46.1
Expectations - General Business Conditions; Six Months Ahead 24.2 20.0 33.7 62.7 46.3 28.4 36.8
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