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Economy in Brief

U.S. Philly Fed General Activity Index Back to Negative Reading in September
by Kathleen Stephansen, CBE  September 15, 2022

• Business activity weakens this month.

• Prices paid plummet to the lowest level December 2020.

• Future expectations of activity remain negative.

The current general activity diffusion index fell 16 points in September to -9.9 from a 6.2 reading in August. A reading of 4.0 had been expected by the Action Economics Forecast Survey. Most firms (69.4%) reported no change in current activity during September, up from 46.9% in August. Ten percent of firms reported increases in activity, down from 26.2% in August, and 20% reported decreases in activity, little changed for the 19.9% in August.

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 below the 50 expansion/contraction mark to 47.3 in September from 54.8 in August.

Performance of the sub-indices generally deteriorated during September. The index of new orders fell 13 points to -17.6 in September from -5.1 in August. Unfilled orders plummeted 27 points to -28.5 this month from -1.8 in August. The current shipments dropped to 8.8 in September from 24.8 in August, while the delivery time dropped to -18.2 from 2.7 in August. The inventories index declined to -4.8 in the current month from 2.3 last month.

The Philly Fed stated that, on balance, firms reported a softening in manufacturing employment. The employment index declined to 12.0 in September from 24.1 in August. Most firms (82.6%) reported no change in employment during September, up from 68.3% in August. Fifteen percent of respondents reported increases in employment this month, down from 27.9% in August, and 2.7% reported a decline in employment versus 3.8% in August. The average workweek fell to -3.8 in September from 6.1 in August.

Inflation indicators eased considerably in September. The prices paid index plummeted to 29.8 from 43.6 in August, the lowest level since the 27.1 reading in December 2020. Forty one percent of respondents reported paying higher prices this month, versus 56% in August, and 11.3% reported paying lower prices, slightly fewer than the 12.4% in August. The prices received index rose to 29.6 from 23.3 last month.

The diffusion index for future general activity remained negative for the fourth consecutive month even though it posted a 7-point rise to -3.9, from -10.6 in August. The future new orders index improved 14 points to 6.0 up from -8.3 last month, while the future shipments index rose to 20.6 in September from 12.0 in August. The future capital expenditures index dropped 13 points to 4.6 from 18.0 in August. The future employment index declined 3 points to 22.4 in September from 25.1 in August.

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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