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Economy in Brief

Philadelphia Fed Manufacturing Index Jumps in January
by Gerald D. Cohen  January 21, 2021

• Headline index rebounds in January; strongest reading since February 2020.

• All sub-indices rise, most notably new orders.

• ISM-adjusted index tops 60, highest since May 2018.

The Federal Reserve Bank of Philadelphia Factory Sector Business Conditions Index jumped to January to 26.5 after falling to 9.1 in December. While the index has been in positive territory since June, indicating business expansion, the overall measure is at its highest level since the pre-COVID February 2020 reading. The Action Economics Forecast Survey expected 12.0. The percentage of firms reporting improving conditions rose to 39.5% from 28.9%, while the share reporting weaker conditions fell to 13.0% from 19.8%. Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same underlying components that comprise the national ISM index. This measure increased to 61.2, the highest reading since May 2018, which was the previous cyclical peak.

All sub-indices rose, led by new orders which rebounded to 30.0 in January from 1.9, though it is still below the October 2020 reading. The employment index improved to 22.5, the highest reading since October 2019. The index of prices paid jumped to 45.4 in January, a level not seen since August 2018.

The Philadelphia Fed also surveys expectations for business activity in six months. The Future Activity Index strengthened to 52.8 in January, though it was 59.5 in September 2020. Sub-indices were mixed with new orders unchanged ,and shipments and employment down.

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.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Jan Dec Nov Jan'20 2020 2019 2018
General Factory Sector Business Conditions 26.5 9.1 20.7 13.7 7.7 9.6 20.7
ISM-Adjusted Business Conditions 61.2 53.5 57.3 54.9 52.2 55.4 57.6
  New Orders 30.0 1.9 26.1 23.0 8.6 13.7 20.6
  Shipments 22.7 12.0 18.2 21.4 9.6 16.6 22.6
  Unfilled Orders 25.6 -0.1 17.6 -1.2 0.3 7.6 6.9
  Delivery Time  30.0 17.3 14.6 0.8 5.1 9.4 9.5
  Inventories 12.6 7.7 0.4 -2.0 -0.2 5.0 7.3
  Number of Employees 22.5 5.6 22.3 16.9 4.9 16.8 21.3
  Average Workweek 18.6 15.5 22.4 3.6 4.3 9.7 15.8
  Prices Paid 45.4 24.9 32.0 19.5 16.7 19.6 46.1
Expectations - General Business Conditions; Six Months Ahead 52.8 43.1 45.6 39.6 46.3 28.4 36.8
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