Philly Fed Manufacturing Index Rebounds Despite Pessimistic Outlook

PHILADELPHIA, PENNSYLVANIA, UNITED STATES - 2012/04/03: Ben Franklin Parkway and City Hall
Photo by John Greim/LightRocket via Getty Images

Business conditions in the northern MidAtlantic U.S. improved in August, a survey of manufacturers indicated on Thursday.

The Federal Reserve Bank of Philadelphia said its index of general business conditions in the region rose into positive territory after two negative months. The index rose from -12.3 in July to +6.2.

The unexpected rise in the Phily Fed index—economists had forecast the index would remain negative at -5—provides some relief from fears that manufacturing growth may have come to a sudden halt. That concern was sparked by an unexpected crash in the Empire State manufacturing index reported by the Federal Reserve Bank of New York on Monday. The N.Y. Fed’s index saw the second worst crash in its history in August.

A plurality of 46.9 percent of manufacturing businesses said there was no change in the month. Twenty six point two percent said business activity increased in the month and 19.9 percent said it decreased.

The Philly Fed pointed out that despite the improvement, the 6.2 reading is “low.”

Businesses also remain pessimistic, although slightly less so than a month ago. The index of expectations for conditions six months ago rose eight points but remained negative at -10.6. The share saying they expect business activity to fall was 28.8 and the share saying they expect activity to be higher was 18.2.

The barometer of new orders improved but remained in negative territory at -5.1. Unfilled orders also improved but remained negative at -1.8. Inventories turned positive, as did the measure of delivery times. Expectations for new orders also remained negative, although less so than in July.

Shipments improved 10 points from 14.8 to 24.8 but expectations dipped a bit.

The employment index rose with 27.9 percent of manufacturers saying they increased payrolls and just 3.8 percent saying they shrank payrolls.

The average workweek was reported as unchanged by 93 percent of companies. No companies reported a shrinking workweek and 6.1 percent reported a longer average workweek, dropping the index from 6.4 to 6.1. Expectations for both payrolls and workweek both improved.

There was good news in the inflation measures for August. Both the indexes for prices paid and prices received continue to indicate widespread price increases but declined for the fourth straight month. The prices paid gauge decreased 9 points to 43.6, its lowest reading since December 2020. Fifty-six percent of the firms reported increases in input prices, and 12 percent reported decreases. The current prices received measure moved down 7 points to 23.3, its lowest reading since February 2021. Almost 31 percent of the firms reported increases in the prices of their own goods, 8 percent reported decreases.

Unfortunately, the measure of expected prices paid and prices received rose. The share of businesses expecting prices paid for materials was 60.7 and the share expecting lower costs was just 12.9. The share expecting to charge higher prices six months from now was 53.6 versus 8.6 expecting to charge lower prices.

This month’s special question asked firms about their expectations for changes in their own products and for U.S. consumers a year from now. Businesses said they expect to keep raising prices but they expect broad inflation to be even higher.  The median forecast was for an expected increase of 5.0 percent in prices of their own products, unchanged from when this question was last asked in May. The median forecast for inflation was six percent, down from 6.5 percent in May. Over the long run, the firms’ median forecast for the 10-year average inflation rate was 3.0 percent, down from 3.5 percent in May.

Manufacturers reported an increase of 10.0 percent in their own prices over the past year, up from 6.0 percent in May.

The Phily Fed survey polls manufacturing firms in the Third Federal Reserve District, which includes eastern Pennsylvania, southern New Jersey and Delaware. The August poll was conducted between August 8th and August 15th.



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