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Economy in Brief

U.S. Philly Fed General Activity Index Back to Positive Reading in August
by Kathleen Stephansen, CBE  August 18, 2022

• Business activity returns to positive territory in August following two consecutive monthly declines.

• Inflation indicators fell again this month, though remain elevated.

• Future expectations of activity remain negative in August despite the improvement from July.

The current general activity diffusion index rose nearly 19 points in August to 6.2, returning to positive territory following two consecutive negative readings in June (-3.3) and July (-12.3). A reading of -5.0 had been expected by the Action Economics Forecast Survey. Most firms (46.9%) reported no change in current activity during August, though down from 61.0% in July. Twenty six percent of firms reported increases in activity, up from 11.8% in July, and 19.9% reported decreases in activity, versus 24.2% in July. Survey responses were collected from August 8 to August 15.

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 bounced back to 54.8 from 48.7 in July.

Performance of the sub-indices generally improved this month. The index of new orders rose 20 points though remained negative at -5.1, up from -24.8 in July. Unfilled orders rose from -10.4 in July to -1.8 in August. The current shipments index rose 10 points to 24.8 from 14.8 in July, while the delivery time rose from -10.2 in July to 2.7 in August. The inventories index also rose in the current month, to 2.3 from -9.3 in July.

The Philly Fed stated that, on balance, firms reported increases in manufacturing employment. The employment index rose nearly 5 points to 24.1 in the current month from 19.4 in July. Twenty eight percent of respondents reported increases in employment this month, up from 24% in July, while a smaller 3.8% share of respondents reported lower employment from 4.3% in July. The average workweek was little changed at 6.1 versus 6.4 in July.

Inflation indicators fell again this month but remain elevated. The prices paid index declined to 43.6 from 52.2 in July, the lowest level since the 47.4 reading posted in January 2021. Fifty-six percent of respondents reported paying higher prices in August, little changed from July, while 12.4% reported paying lower prices, an improvement from the 3.4% share in July. The prices received index dropped to 23.3 from 30.3 in July, the lowest level since February 2021.

The diffusion index for future general activity remained negative for the third consecutive month even though it posted a rise of 8 points to -10.6 from -18.6 in July. The future new orders index rose 4 points but remained negative at -8.3 up from -12.4 in July, while the future shipments index inched down to 12.0 this month from 12.8 in July. The future capital expenditures index rose 14 points to 18.0, after falling to 4.4 in July, the lowest level since March 2013. The future employment index rose 9 points this month to 25.1 from 16.5 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. 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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