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Economy in Brief

Philadelphia Fed Manufacturing Index Declines in July
by Tom Moeller  July 15, 2021

• Headline index falls to lowest level since December

• New orders decline sharply.

• Prices paid weaken to six-month low.

• Expectations also decline.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index fell sharply to 21.9 in July from 30.7 in June. The index peaked at 50.2 in April. Above 50, the index continued to indicate growth in manufacturing activity. A lesser decline to 28.4 had been expected by the Action Economics Forecast Survey. The percentage of firms reporting improving conditions declined to 33.0% in July from 41.6% in June. The share reporting weaker conditions edged up to 11.2% from 10.9%. The share reporting no change increased to 51.4% from 47.5%.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index using the same methodology as the national ISM index. The reading declined to 59.0 in July from 62.5 in June.

Performance of the subindexes was mixed in July. The new orders index fell to 17.0 in July from 22.2 in July, while the shipments index eased to 24.6 from 27.2 which was the highest reading since February. The employment index also weakened 29.2 from 30.7 in June. Thirty-eight percent of respondents reported more hiring compared to 39% in June. Nine percent of firms lowered employment compared to eight percent in June. The delivery time index rose modestly to 33.3 from 29.3 in June. The unfilled orders index fell sharply to 19.0 from 22.5 in June. It was the lowest level since February.

On the pricing front, the index of prices paid weakened sharply to 69.7 from 80.7 in June which was the highest reading since 1979. Seventy-percent of respondents reported paying higher prices versus 82% in June while two percent reported paying lower prices. The index of prices received slipped to 46.8 from 49.7 in June which was the highest level since 1980.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity index fell sharply to 48.6 in July from 69.2 in June. It was the lowest level since February. Expected new and unfilled orders fell sharply but employment rose. The expected prices reading fell to the lowest level since February.

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) Jul Jun May Jul'20 2020 2019 2018
General Factory Sector Business Conditions 21.9 30.7 31.5 24.1 7.9 9.9 20.9
ISM-Adjusted Business Conditions 59.0 62.5 62.7 53.6 52.3 55.5 57.7
  New Orders 17.0 22.2 32.5 23.0 8.9 14.1 21.0
  Shipments 24.6 27.2 21.0 15.3 9.7 16.9 22.8
  Unfilled Orders 19.0 22.5 40.4 3.9 0.4 7.7 7.0
  Delivery Time  33.3 29.3 41.5 -6.4 5.1 9.4 9.5
  Inventories -4.0 17.9 25.6 -11.8 -0.2 5.1 7.2
  Number of Employees 29.2 30.7 19.3 20.1 5.0 16.9 21.5
  Average Workweek 18.4 20.1 35.5 17.2 4.4 9.8 15.9
  Prices Paid 69.7 80.7 76.8 15.7 16.6 19.7 46.1
Expectations - General Business Conditions; Six Months Ahead 48.6 69.2 52.7 36.0 46.3 28.4 36.8
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