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Economy in Brief

U.S. Philly Fed Index Rebounded in January
by Sandy Batten  January 20, 2022

• New orders and shipments increased, but employment declined.

• Delivery times eased for second straight month.

• Prices paid continued to rise markedly.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index rebounded in January, rising more than expected to 23.2 after having plummeted to 15.4 in December. The Action Economics Forecast Survey had looked for a more modest rise to 19.1. The percentage of firms reporting improving conditions increased to 30.6% in January from 26.8% in December, while the share reporting weaker conditions fell to 7.4% from 11.4%. The share reporting no change rose to 59.6% from 59.1% in December.

The headline index reflects the answer to a single question. Haver Analytics calculates an ISM-Adjusted General Business Conditions Index from five components using the same methodology as the national ISM index. That calculation fell to 57.6 in January from 60.2 in December. However, the decline in in the calculated measure was due mostly to shorter delivery times and a decline in inventories as new orders and shipments posted increases.

Performance of the subindexes was mixed. The new orders index rose to 17.9 from 13.7 in December. The shipments index increased to 20.8 from 15.3. The delivery times index fell to 25.2 in January, the second consecutive monthly decline, from 31.4. While a slowing of delivery times is usually associated with a slowing economy, the current decline is appreciated as it may indicate that supply-chain bottlenecks are easing. The inventory index fell to 3.1 in January from 13.2.

The employment index fell to 26.1 this month, its lowest reading since last May, from 33.9 in December. Again, while a decline in this subindex is usually associated with a decrease in demand for labor, given the recent performance of other labor-market indicators, this decline could reflect a growing lack of qualified candidates. However, the average workweek declined to 9.6 in January from 30.4, indicating that the existing workforce was not being worked more intensively.

Input price inflation pressures continued as the index of prices paid rose to 72.5 in January from to 66.1 in December. Seventy-two percent of respondents reported paying higher prices, while none paid less. The index of prices received dropped to 46.4 this month from 50.4 in December.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity index rose to 28.7 in January from 19.0 in December. The reading reached a high of 69.2 last June. New orders and shipments are both expected to increase over the next six months while delivery times are expected to shorten. Prices paid and received are both expected to continue rising.

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'21 2021 2020 2019
General Factory Sector Business Conditions 23.2 15.4 39.0 30.1 30.5 7.9 9.9
ISM-Adjusted Business Conditions 57.6 60.2 65.4 60.7 61.4 52.3 55.5
  New Orders 17.9 13.7 47.4 24.2 27.2 8.9 14.1
  Shipments 20.8 15.3 32.1 24.2 24.9 9.7 16.9
  Unfilled Orders 23.5 11.4 27.4 22.4 19.1 0.4 7.7
  Delivery Time  25.2 31.4 35.7 29.4 29.3 5.1 9.4
  Inventories 3.1 13.2 13.5 11.5 12.6 -0.2 5.1
  Number of Employees 26.1 33.9 27.2 25.3 28.2 5.0 16.9
  Average Workweek 9.6 30.4 30.6 21.0 27.9 4.4 9.8
  Prices Paid 72.5 66.1 80.0 47.4 68.9 16.6 19.7
Expectations - General Business Conditions; Six Months Ahead 28.7 19.0 28.5 51.3 42.7 46.3 28.4
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