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Economy in Brief

Philadelphia Fed Manufacturing Index Rebounds But Prices Weaken
by Tom Moeller  March 21, 2019

The Federal Reserve Bank of Philadelphia reported in its Manufacturing Business Outlook Survey that the General Business Conditions Index rebounded this month to 13.7 after declining in February to -4.1. A lesser rise to 7.0 had been expected in the Action Economics Forecast Survey. Despite the surprise, the gain failed to recover all of February's weakening and left the survey reading well below the peak in early-2017. As such, it indicates continuing softness in factory sector growth. Thirty percent of respondents reported an increase in activity and nineteen percent reported a decline.

Haver Analytics constructs an ISM-Adjusted General Business Conditions index based on these results. It rose to 54.7 and made up its February decline. The rise still left the index significantly below last May's peak level. During the last dozen years, there has been a 66% correlation between the index and quarterly growth in real GDP.

Performance amongst the components of the overall index was mixed this month. A recovery in the shipments index led the gain along with higher new orders and inventories readings. Continuing to weaken were the unfilled orders and delivery times indexes.

On the labor front, the employment series returned to the lowest level since September 2017. A significantly lessened twenty percent of respondents reported increased hiring while a steady ten percent reported a decline. During the last dozen years, there has been a 78% correlation between the jobs index and the m/m change in factory sector payrolls. The employee workweek figure increased moderately to the highest level since October.

Pricing power continued to weaken. The prices paid index declined to the lowest level since July 2017, and was one-third the level in July of last year. A significant lessened twenty-four percent of respondents reported higher prices while a lessened four percent paid less. The index of prices received eased m/m and has trended sideways for six months.

The expectations series declined to the lowest level since early-2016 due to broad-based component weakening. Expected orders and shipments declined notably. The employment reading remained significantly below the series' high.

The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern PA, southern NJ 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 "same."

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 database.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Mar Feb Jan Mar'18 2018 2017 2016
General Factory Sector Business Conditions 13.7 -4.1 17.0 23.8 21.1 27.3 4.9
ISM-Adjusted Business Conditions 54.7 51.9 54.4 59.8 57.7 57.3 48.2
  New Orders 1.9 -2.4 21.3 27.4 21.0 25.3 5.0
  Shipments 20.0 -5.3 11.4 28.2 22.8 26.8 6.9
  Unfilled Orders 3.1 6.9 5.4 17.3 7.1 11.9 -5.6
  Delivery Time 8.8 13.6 13.4 13.2 9.5 10.6 -4.6
  Inventories 17.2 3.3 -7.6 13.6 7.4 2.9 -9.6
  Number of Employees 9.6 14.5 9.6 25.2 21.6 16.1 -5.6
  Average Workweek 10.6 4.7 6.0 12.7 15.9 14.9 -5.4
  Prices Paid 19.7 21.8 32.7 42.6 46.4 30.4 13.5
Expectations - General Business Conditions; Six Months Ahead 21.8 31.3 31.2 46.2 36.9 47.1 33.7
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