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Economy in Brief

U.S Philly Fed General Activity Index Remains Weak in October
by Kathleen Stephansen, CBE  October 20, 2022

• Business activity continues to decline but employment is up.

• Firms report price increases.

• Future expectations of activity continue to deteriorate.

The Philly Fed reported that overall manufacturing activity in the region continued to decline this month. The current general activity diffusion index edged up 1 point in October to -8.7 from -9.9 in September. A reading of -6.6 had been expected by the Action Economics Forecast Survey. Most firms (54.5%) reported no change in current activity, though down from 69.4% in September. Fifteen percent of firms reported increases in activity, up from 10.1% in September, and 23.9% reported decreases in activity, slightly up from 20% in September.

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 remained below the 50 expansion/contraction mark at 48.9, slightly better than the 47.3 reading in September.

On balance, performance of the sub-indices remained negative during October. The index of new orders rose 2 points to -15.9 in October from -17.6 in September. Unfilled orders rose 6 points to -22.5 this month from -28.5 in September. Shipments stood at 8.6, little changed from 8.8 in September, while the delivery time rose 6 points to -12.6 in October from -18.2 in September, suggesting some improvement in the supply-chain backlog. The inventories index rose to -1.7 in the current month from -4.8 last month.

The Philly Fed stated that firms continued to report higher employment. The employment index rose 17 points to 28.5 in October from 12.0 in September. Most firms (63.1%) reported no change in employment during September, down from 82.6% in September. Twenty nine percent of respondents reported increases in employment this month, up from 14.7% in September, and 0.6% reported a decline in employment versus 2.7% in September. The average workweek rose 14 points to 10.4 this month from -3.8 in September.

Inflation indicators rose modestly this month following steady declines through the summer. The prices paid index rose to 36.3 from 29.8 in September. Forty six percent of respondents reported paying higher prices this month, versus 41.1% in September, and 9.6% reported paying lower prices, slightly fewer than the 11.3% in September. The prices received index rose to 30.8 from 29.6 last month.

The diffusion index for future general activity remained negative for the fifth consecutive month, falling 11 points to -14.9 this month from -3.9 in September. The future new orders index plummeted 23 points to -16.7 from 6.0 last month, while the future shipments index dropped 16 points to 4.7 from 20.6 in September. The future capital expenditures index stood at 4.4 this month, little changed from the 4.6 reading in September, with the concentration of investment remaining in energy-saving, and in computer and related hardware investments. The future employment index declined 10 points to 12.2 in October down from 22.4 in September.

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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