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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Index Strengthens
by Tom Moeller  August 21, 2018

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current conditions at the company level increased to 41.1 during August, the highest reading since June 2015. A slightly lessened 51 percent of respondents reported an increase in current activity but a greatly lessened 9% reported a decline.

The expectations index at the company level for August rose to 50.7, but only partially reversed its July decline. Sixty-two percent of respondents reported improved expectations while 12 percent indicated a decline.

The component series were mixed. The new orders index fell to the lowest level since April yet remained sharply improved y/y. The sales or revenue index increased, however, to the highest level since February 2015. The inventory index increased to the highest point since December 2016. The unfilled orders index also improved m/m, but remained sharply below its high six months ago.

On the labor front, the number of full-time permanent employees index recorded another record high. Thirty-six percent of companies added jobs while four percent indicated reduction. The index of part-time/temporary employment recovered its July decline and continued its upward trend. The average workweek reading continued to trend sideways as it fell m/m. The index of wage & benefit costs eased m/m, but remained near the record high.

The index of prices paid declined to the lowest level since April, but remained up sharply from its June 2017 low. A lessened 30% of respondents paid higher prices while three percent paid less. The prices received index rebounded sharply and neared the highest level in three years.

The index for capital spending on equipment and software declined following its surge to a record high. The capital expenditures for facilities index increased to the highest level since January.

The Philadelphia Fed figures are diffusion indexes which are calculated by subtracting the percent of respondents reporting poorer business conditions from those reporting improvement. So, readings above zero indicate more positive than negative responses. These indexes have a good correlation with growth in the series covered. The data are available in Haver's SURVEYS database.

Federal Reserve Bank of Philadelphia: Nonmanufacturing Business Outlook Survey (Diffusion Index, SA) Aug Jul Jun Aug'17 2017 2016 2015
General Activity - Company 41.1 35.5 40.7 29.4 27.3 19.7 31.3
  New Orders 29.0 31.5 35.5 18.4 19.1 15.7 21.8
  Sales or Revenue 40.5 35.6 24.6 25.1 27.9 16.2 23.8
  Inventories 9.5 5.4 5.1 2.3 3.8 4.4 5.2
  Number of Full-Time Permanent Employees 32.2 29.5 19.9 4.0 14.8 11.7 15.6
  Prices Paid 27.4 28.6 36.6 21.3 21.4 17.5 19.3
  Wage & Benefit Costs 46.4 47.5 51.1 35.3 33.4 31.2 32.5
Expected General Activity - Company 50.7 41.5 58.2 46.3 49.9 43.0 53.8
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