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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Rebounds
by Tom Moeller  November 20, 2018

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current conditions at the company level increased to 42.4 during November and recouped most of its October decline. A higher 55% of respondents reported an improvement in current activity while a increased 13% reported a decline.

The expectations index for November rose to 53.6 and returned to the middle of the range in place since early last year. Sixty-seven percent of respondents reported improved expectations while 14% indicated a decline.

Most components of the overall index improved m/m. The shipments series recovered to the highest level since March 2012. The new orders series reversed its October decline and rose to the highest level in three months. The unfilled orders series recovered modestly after its October decline, but remained down sharply versus the February high. The inventory index similarly rose to the middle of this year's range.

Further weakness appeared on the labor front. The number of full-time permanent employees index deteriorated sharply to the lowest level in six months. A greatly lessened 19% of companies added jobs while a stable nine percent indicated reduction. The index of part-time/temporary employment increased modestly and remained in the upward trend in place during the last year. The average workweek reading continued to trend sideways as it was little changed m/m. The index of wage & benefit costs declined sharply to the lowest level since April.

The index of prices paid surged to a record high. A greatly increased 38% of respondents paid higher prices while none paid less. The prices received index improved moderately and remained up sharply during the last year.

The index for capital spending on equipment & software rose modestly after deteriorating sharply three months ago. The capital expenditures for facilities index remained depressed from 2017 levels.

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) Nov Oct Sep Nov'17 2017 2016 2015
General Activity - Company 42.4 37.2 46.8 18.5 27.3 19.7 31.3
  New Orders 28.2 7.8 26.7 16.3 19.1 15.7 21.8
  Sales or Revenue 48.9 41.3 42.8 20.7 27.9 16.2 23.8
  Inventories 6.4 -1.5 13.9 3.7 3.8 4.4 5.2
  Number of Full-Time Permanent Employees 10.3 16.6 36.7 19.5 14.8 11.7 15.6
  Prices Paid 37.5 15.0 26.3 23.8 21.4 17.5 19.3
  Wage & Benefit Costs 36.0 41.9 48.1 41.6 33.4 31.2 32.5
Expected General Activity - Company 53.6 43.9 53.6 43.4 49.9 43.0 53.8
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