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Economy in Brief

U.S Philadelphia Fed General Activity Index Declines in November
by Tom Moeller  November 17, 2022

• Employment index falls sharply as shipments ease.

• Prices paid reading continues to decline.

• Expectations are less pessimistic.

The Federal Reserve Bank of Philadelphia reported that overall manufacturing activity in the region declined this month. The current general activity diffusion index fell to -19.4 after improving slightly to -8.7 in October. A reading of -6.0 had been expected by the Action Economics Forecast Survey. A slightly improved 16.5% of firms reported improved general activity but a greatly increased 35.9% reported deterioration.

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 eased to 48.1 from 48.9 in October and remained below the 50 expansion/contraction mark. It is down from a high of 65.4 twelve months ago.

The employment reading fell to 7.1 from 28.5 in November and stands at the lowest level since June 2020. A lessened 18.7% of firms reported increased hiring compared to 29.1% in October, while a greater 11.6% reported reduced hiring compared to 0.6% last month. A cutback in hours worked pushed the hours index down to 1.4 from 10.4 in October. The index stands well below the high of 36.4 in March 2021.

The index of new orders eased to -16.2 from -15.9 in October and was negative for the sixth straight month. Unfilled orders eased to -22.9 this month from -22.5 in October, also negative for the sixth straight month. Shipments fell to 7.0 from 8.6, down from 35.3 in May. The inventories reading fell to -6.5 from -1.7, negative for the fifth month in the last six. Working the other way, the delivery time index rose to -8.8 from -12.6 in October.

Inflation indicators continued to fall this month from their April high. The prices paid index fell to 35.3 from 36.3 in October. The index reached a near-record high of 84.6 in April. A slightly increased 46.9% of respondents reported paying higher prices this month versus 45.9% in October, and 11.6% reported paying lower prices versus 9.6% last month. The prices received index rose to 34.6, a five-month high.

The diffusion index for future general activity remained negative for the sixth consecutive month, though it rose to -7.1 from -14.9 in October. The future new orders index rose to -4.8 from -16.7, while the future shipments index improved to 10.2 from 4.7 in October. The future employment reading fell to 11.1 from 12.2, down from 56.6 in July of last year. The future prices paid fell sharply to 18.5 from 25.8, down from a high of 76.4 this past January.

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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