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Economy in Brief

U.S. Philadelphia Fed Manufacturing Index Dropped Sharply in December
by Kathleen Stephansen, CBE  December 16, 2021

• Component declines were broad based.

• New orders dropped from the November multi-year high.

• Delivery times eased.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index plummeted to 15.4 in December from 39.0 in November. It was the lowest reading since December 2020, when the index stood at 11.1. A reading of 27.0 had been expected by the Action Economics Forecast Survey. The percentage of firms reporting improving conditions dropped to 26.8% from 41.8% in November, while the share reporting weaker conditions rose to 11.4% from 2.8% in November. The share reporting no change rose to 59.1% in December from 55.4% in November.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. The reading declined to 60.2 in December from 65.4 in November.

Performance of the subindexes was mostly negative. The new orders index dropped to 13.7 this month from admittedly a multi-year high of 47.4 in November. The shipments index dropped to 15.3 from 32.1 in November. The unfilled orders index declined to 11.4 this month from 27.4 last month, while the delivery times index eased to 31.4 and the inventory index eased to 13.2.

The employment index rose 33.9 this month from 27.2 in November. Thirty-nine percent of respondents reported more hiring, while 5.2% lowered employment. The average workweek reading eased to 30.4 from the six-month high of 30.6 in November.

The index of prices paid declined to 66.1 in December from 80.0 the prior month. Sixty-eight percent of respondents reported paying higher prices, while 2.3% paid less. The index of prices received dropped to 50.4 this month from 62.9 last month.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity index fell to 19.0 in December from 28.5 in November. The reading reached a high of 69.2 in June of this year. Expected new orders, shipments and inventories all fell but employment and delivery times rose. The expected prices reading fell, as did the capital expenditures to 20.0 this month following a small decline in November.

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) Dec Nov Oct Dec'20 2021 2020 2019
General Factory Sector Business Conditions 15.4 39.0 23.8 11.1 30.5 7.9 9.9
ISM-Adjusted Business Conditions 60.2 65.4 63.6 54.8 61.4 52.3 55.5
  New Orders 13.7 47.4 30.8 2.3 27.2 8.9 14.1
  Shipments 15.3 32.1 30.0 14.4 24.9 9.7 16.9
  Unfilled Orders 11.4 27.4 12.7 1.4 19.1 0.4 7.7
  Delivery Time  31.4 35.7 32.2 18.5 29.3 5.1 9.4
  Inventories 13.2 13.5 18.8 10.3 12.6 -0.2 5.1
  Number of Employees 33.9 27.2 30.7 8.5 28.2 5.0 16.9
  Average Workweek 30.4 30.6 27.8 18.0 27.9 4.4 9.8
  Prices Paid 66.1 80.0 70.3 27.1 68.9 16.6 19.7
Expectations - General Business Conditions; Six Months Ahead 19.0 28.5 24.2 39.2 42.7 46.3 28.4
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