Philly Fed Manufacturing Index Jumps Much Higher than Expected

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The Philadelphia Fed manufacturing index in March rebounded by much more than expected, indicating a stronger than expected pick-up in factory activity.

The index fell to a seasonally adjusted reading of 13.7 from a negative 4.1 in the prior month. Economists surveyed by Econoday had expected a more modest bounce to 5.5.

Any reading above zero indicates improving conditions.

The sharp uptick reverses last month’s disappointing negative turn, the first negative reading since 2016.  It suggests that the U.S. may be more resilient to the global industrial downturn and that the February reading may have been more of a temporary dip linked to the partial government shutdown earlier this year. The Empire State index, which is considered a less reliable indicator than the Philadelphia Fed, showed weakness in last week’s reading but was stronger in February.

The survey’s strength was broad. New orders increased to 1.9 in March from -2.4 in February.  Shipping jumped all the way to 20 from negative 5.3 in the prior month. Employment measure slipped to 9.6  from 14.5 but remains well into positive territory, suggesting that employment continued to expand despite very low unemployment levels and rising wages. And the index for future employment edged up 1 point to 24.9.

The one warning sign was in the outlook. The survey’s measure of forecasts of business condition six-months out dropped to 21.8 in March from 31.3 in February. While that is still a strong reading it suggests that factory-owners are less positive about later in the year than they were earlier. Nearly 42 percent of the region’s manufacturers expect increases in activity over the next six months, while 20 percent expect declines.

There’s no sign of tariff-led inflation in the survey, once again defying the predictions that trade disputes would squeeze consumers. The prices paid index fell 2 points to 19.7, the eighth consecutive month of declines and the lowest reading July 2017. Nearly 24 percent of the of businesses reported higher input prices in March, a decline from 28 percent last month. With respect to prices received, 26 percent reported higher prices, down from 33 percent last month. The prices received index decreased 3 points to 24.7.



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