Philadelphia Fed Manufacturing Index Improves, Despite Easing in Most Components

The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index increased to 10.4 during November, but did not recover all of October's decline to 5.6. The index remained below the July high of 21.8. An index of 7.3 had been expected in the Action Economics Forecast Survey. These figures are diffusion indexes where readings above zero indicate expansion. The percentage of firms reporting an improvement in business activity rose modestly to 30% this month from 27% in October. The percentage reporting weaker conditions eased to 20% from 21%.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. It fell to 53.8 this month from 58.7 in October. The index reached an expansion high of 61.1 in May of 2018. Over the past twenty years, there has been a 61% correlation between the ISM-Adjusted Philadelphia Fed Index and q/q real GDP growth.

The improvement in the General Activity Index was accompanied by deterioration in most of the underlying series. The new orders and the unfilled orders measures both declined sharply. A lessened 32% of respondents reported higher order volumes while an increased 24% reported a decline. The shipments series fell to a nine-month low and the inventory figure revealed decumulation for the first time in six months.

The employment index gave back some of its gain to a record high during October. A greatly lessened 27% of respondents reported an increased level of hiring, while a higher five percent reported a decline. During the last twenty years, there has been a 77% correlation between the jobs index and the m/m change in factory sector employment. The average workweek measure fell to the lowest level since February. It remained well below the May 2018 high.

The index of prices paid declined sharply and remained beneath its July 2018 high. A lessened 17% of respondents paid higher prices while an increased nine percent reported lower prices. The index of prices received fell to a four-month low.

The Philadelphia Fed also constructs indexes of future activity. The expected General Business Conditions series improved to the highest level since July. The future workweek, delivery time and inventory measures increased while others were little changed.

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.