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Economy in Brief

U.S. Philadelphia Fed Index Turns Negative in June
by Tom Moeller  June 16, 2022

• New and unfilled orders decline.

• Employment strengthens.

• Prices paid continue to ease.

The Federal Reserve Bank of Philadelphia's Manufacturing Business Conditions Index declined to -3.3 during June from +2.6 in May. It was the first negative reading since May 2020. The Action Economics Forecast Survey expected an improvement to 6.0. The percentage of firms reporting improved conditions fell to 16.3% from 22.2% in May. The share reporting weaker conditions was fairly steady at 19.6%. Responses to this month's survey were collected from June 6 through June 16.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index from five key components using the same methodology as the national ISM index. The index fell to 53.3 this month from 59.9 in May.

Performance of the sub-indexes remained mixed. The new orders index declined to -12.4 this month from +22.1 in May. The unfilled orders index declined to -7.0 from +17.9 last month. The inventories series weakened to -2.2 from +3.2 in May.

Elsewhere, the sub-indexes declined m/m but remained positive. The shipments series fell to 10.8 from 35.3, while the delivery times reading declined to 9.9 from 17.5. The average workweek measure fell to 11.8 this month from 16.1 in May.

Moving higher was the employment measure to 28.1, which came after May’s drop to 25.5 from the record 41.4 in April. An improved 31.3% of respondents raised employment versus 26.7% in May, while 3.2% reduced payroll sizes after 1.2% did so in May.

Inflation pressures eased. The prices paid reading declined to 64.5 after falling to 78.9 in May. A lessened 70.1% of respondents reported paying higher prices while 5.6% reported paying lower prices. The prices received index declined to 49.2 in June, the lowest level since January.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity collapsed to -6.8 in June. It reached a high of 69.2 twelve months ago. All of the sub-indexes declined m/m. New & unfilled orders, along with delivery times and inventories were greatly negative. Expected prices paid eased slightly from after a sharp decline in May.

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. 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.

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