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Economy in Brief

Philly Fed Future General Activity Index Plunges to the Lowest Reading since December 1979
by Winnie Tapasanun  July 21, 2022

• Business activity falls for four straight months, w/ the current general activity index down 9.0 pts. to -12.3, the second consecutive negative reading.

• Extensive declines in sub-indexes except shipments rising 4.0 pts. to 14.8.

• Inflation indicators, while down modestly, still indicate widespread price increases.

• Future optimism wanes w/ the future general activity index down 11.8 pts. to -18.6, the lowest reading since December 1979.

The current general activity index plunged to -12.3 in July from -3.3 in June and 2.6 in May, according to the latest Manufacturing Business Outlook Survey released by the Federal Reserve Bank of Philadelphia. The July reading was the second successive negative reading and the fourth consecutive monthly decline to the lowest level since May 2020's -43.1. The index was also well below the peak of 50.2 in April 2021 and 21.9 in July 2021. A reading of 1.7 had been expected by the Action Economics Forecast Survey. The percentage of firms reporting improved conditions fell to 11.8% in July from 16.3% in June. The share reporting weaker conditions rose to 24.2% from 19.6%. Responses to this month's survey were collected from July 11 to July 18.

Haver Analytics calculates an ISM-adjusted general business conditions index from five key components using the same methodology as the national ISM index. The index fell to 48.7 in July from 53.3 in June and 59.0 last July, registering the first contraction since May 2020's 42.7.

Performance of the sub-indexes mostly dropped this month. The new orders index decreased to -24.8 in July from -12.4 in June and the unfilled orders index fell to -10.4 from -7.0; both posted their third monthly drops in four months to the lowest levels since May 2020. The inventories index fell further to -9.3, the lowest level since August 2021, from -2.2. The employment indicators dropped this month but remained positive. The number of employees index fell to 19.4 in July, the lowest level since May 2021, from 28.1 in June. Twenty-four percent of respondents reported increases in employment in July versus 31.3% in June, while 4.3% reported lower employment versus June's 3.2%. The average employee workweek index slid to 6.4, the fourth consecutive m/m slide to the lowest level since June 2020, from 11.8. The delivery times index fell to -10.2, the lowest reading since May 2016, from 9.9. In contrast, the shipments index rebounded to 14.8 in July from 10.8 in June, posting the second monthly increase in three months.

Inflation indicators fell this month but remained elevated. The prices paid index declined to a still-high 52.2 in July from 64.5 in June, registering the lowest reading since January 2021's 47.4. Nearly fifty-six percent of respondents reported paying higher prices while only 3.4% reported paying lower prices. The prices received index fell to 30.3, the lowest level since March 2021, from June's 49.2.

The future indicators remained weak as firms expected declines in activity over the next six months. The future general activity index worsened to -18.6 in July, the lowest level since December 1979, from -6.8 in June. The future new orders index decreased to -12.4, the lowest reading since September 1979, from -7.4. The future capital expenditures index fell to 4.4, the lowest level since March 2013, from 11.7. To the upside, firms expected shipments and employment to increase over the next six months.

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. 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.

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