Philly Fed Survey: Factories Came Roaring Back in July

Business conditions in the Philadelphia Fed region improved far more than expected in July.

The Federal Reserve Bank of Philadelphia said Thursday that its survey of factories showed the sharp improvement in orders, shipments, and employment.  The general activity index surged by 21.5 points, the biggest jump since 2009, to 21.8, the highest level since one year ago.

Economists surveyed by Econoday had forecast a reading of 5 after the June slump that brought the index down to 0.3, just a few ticks above the level that would indicate economic contraction in the area that includes Philadelphia, eastern Pennsylvania, Delaware, and parts of New Jersey.

The gauge of new orders rose 11 points to 18.9 while the shipments index rose 8 points to 24.9.  Inventories rose as well. The six-month business outlook rose 17 points to 38, the best reading since May 2018.

The metric for employment rose to 30, the highest reading since the record high hit in October 2017. Over 36 percent of the firms reported higher employment, compared with 25 percent last month. Only 6 percent reported decreases in employment this month. The average workweek index also increased 16 points, hitting its highest reading in 14 months.

This month’s survey included a “special question” asking companies whether demand for their products had increased or decreased. Fifty-six percent of firms said demand had increased, while 32 percent of the firms indicated recent decreases.

The report also had more bad news for those who predicted higher tariffs would raise prices. While manufacturers reported higher prices, the inflation measures were well below their typical readings over the last few years. Price increases for inputs were reported by 29 percent of the manufacturers this month, but 13 percent reported price decreases. The diffusion indexes for both inputs and products sold are well below the levels recorded before the tariffs were applied.

On Monday, The New York Fed’s Empire State report also pointed to a rebound, jumping much higher than expected after June’s slump.

The manufacturing component of the government’s official industrial production figures for June were the best of the year, suggesting that some of the weakness that was apparent in the regional surveys was illusory.