Global| Apr 19 2018Philadelphia Fed Factory Conditions Improve; Prices Jump
Summary
The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index rose to 23.2 during April, reversing some of March's decline. Expectations had been for a reading of 21.0 in the Action Economics [...]
The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index rose to 23.2 during April, reversing some of March's decline. Expectations had been for a reading of 21.0 in the Action Economics Forecast Survey. A slightly higher 36.9% of firms reported an improvement in business activity while a slightly lower 13.7% reported a worsening. As a diffusion index, readings above zero indicate expansion.
Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. This measure weakened this month to 59.7 from March's 30-year high. During the last ten years, there has been a 68% correlation between the quarterly ISM-adjusted Philadelphia Fed Index and quarterly real GDP growth
A drop in new orders, shipments and inventories led the decline in the composite index. Unfilled orders, which is not part of the ISM-Adjusted index, also fell sharply. The continued rise in the vendor delivery index to a record high 20.7 suggests a meaningful slowing in product delivery speeds.
The employment index increased to its highest level in six months. During the last ten years, there has been an 81% correlation between the index level and the month-to-month change in manufacturing employment. Interestingly, fewer respondents reported a rising level of payrolls, but this was more than offset with a drop in layoffs. The average workweek series increased, but has been range-bound for over a year.
The prices paid index jumped to 56.4 its highest level since early 2011. The percent of respondents reporting higher prices soared to 58.9%, while just 2.5% paid lower prices. The index of prices received rose to a cycle high 29.8.
The future activity index dropped to 40.7, its lowest level in nine months. New and unfilled orders as well as employment declined, while shipments and prices paid increased.
The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern PA, southern NJ 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, production, employment, supplier deliveries and inventories with equal weights (20% each). Each ISM-adjusted index is the sum of the percent responding "higher" and one-half of the percent responding "same."
The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database. The expectation from the Action Economics Forecast Survey is available in AS1REPNA.
| Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) | Apr | Mar | Feb | Apr'17 | 2017 | 2016 | 2015 |
|---|---|---|---|---|---|---|---|
| General Factory Sector Business Conditions | 23.2 | 22.3 | 25.8 | 22.8 | 27.4 | 4.9 | 3.7 |
| ISM-Adjusted Business Conditions | 59.7 | 61.9 | 56.6 | 58.5 | 57.2 | 48.3 | 49.4 |
| New Orders | 18.4 | 35.7 | 24.5 | 25.9 | 25.4 | 4.9 | 3.0 |
| Shipments | 23.9 | 32.4 | 15.5 | 24.3 | 26.8 | 6.9 | 3.0 |
| Unfilled Orders | 7.8 | 20.1 | 14.5 | 8.0 | 11.9 | -5.6 | -5.1 |
| Delivery Time | 20.7 | 14.0 | 4.5 | 11.6 | 10.6 | -4.6 | -4.2 |
| Inventories | 9.5 | 16.5 | -0.9 | 13.4 | 2.8 | -9.6 | -1.4 |
| Number of Employees | 27.1 | 25.6 | 25.2 | 17.2 | 16.2 | -5.6 | 3.9 |
| Average Workweek | 21.6 | 12.8 | 13.7 | 16.7 | 14.9 | -5.4 | -1.7 |
| Prices Paid | 56.4 | 42.6 | 45.0 | 32.7 | 30.4 | 13.5 | 1.5 |
| Expectations - General Business Conditions; Six Months Ahead | 40.7 | 47.9 | 41.2 | 45.2 | 47.1 | 33.7 | 37.6 |
Gerald D. Cohen
AuthorMore in Author Profile »Gerald Cohen provides strategic vision and leadership of the translational economic research and policy initiatives at the Kenan Institute of Private Enterprise.
He has worked in both the public and private sectors focusing on the intersection between financial markets and economic fundamentals. He was a Senior Economist at Haver Analytics from January 2019 to February 2021. During the Obama Administration Gerald was Deputy Assistant Secretary for Macroeconomic Analysis at the U.S. Department of Treasury where he helped formulate and evaluate the impact of policy proposals on the U.S. economy. Prior to Treasury, he co-managed a global macro fund at Ziff Brothers Investments.
Gerald holds a bachelor’s of science from the Massachusetts Institute of Technology and a Ph.D. in Economics from Harvard University and is a contributing author to 30-Second Money as well as a co-author of Political Cycles and the Macroeconomy.
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