Philadelphia Fed Manufacturing Index Strengthens in August; Expectations Deteriorate

The Philadelphia Federal Reserve Bank reported in its August survey of manufacturing activity that the Current Activity Diffusion Index of 12.0 this month compared to -13.5 in July. It was increased from a low of -31.3 in April. The latest reading was the highest since April 2022. The figure compared to expectations for -10.8 in the Action Economics Forecast Survey. The Philly Fed survey responses were collected from August 7 to August 14.

The ISM-Adjusted Composite Index, calculated by Haver Analytics from the survey results, was 49.3 in August, up from 44.2 in July, still suggesting a net contraction in activity, but was less weak than the March low of 39.4.

Changes in the component series of the diffusion index remained mixed. New orders jumped to 16.0 from -15.9 in July. Twenty-six percent of respondents reported an increase in new orders while 62.2% had no change, and 10.4% reported a decline. Shipments rose to 5.7 from -12.5, as 19.4% reported increased shipments and 13.7% reported declines. Unfilled orders improved to -4.8 from -15.1 in July. Delivery times also moved up to -7.0 from -12.9 as 5.2% of respondents reported quicker speeds and 12.3% reported a slowdown. To the downside, the inventories reading fell to -10.2 this month from -1.0, as 8.9% of respondents raised inventory levels and 19.1% lowered them.

Job market conditions were mixed this month as indicated by an employment reading of -6.0 compared to -1.0 in July. These figures are, however, improved from a low of -10.3 in March. Twelve percent of survey respondents raised employment while 18.3% reduced it. Moving higher, the hours-worked figure improved to 6.3 from -3.0 in July. It was the strongest reading since October of last year. Fifteen percent of survey respondents raised hours while nine percent lowered them.

The index of prices paid strengthened this month, moving to 20.8 after July’s easing to 9.5. This reflected 26.9% of respondents reporting increased prices and 6.1% lower prices in July. Moving the other way in August, prices received fell to 14.1 from 23.0. It remained up from a low of -7.0 in May. A lessened 27.1% of respondents reported higher prices while an increased 13.0% reported declines.

Expectations for business conditions in the next six months deteriorated greatly to a reading of 3.9 versus 29.1 in July. It was the lowest figure in three months. The August survey showed greatly reduced expectations for new orders, shipments and employment. Expectations for prices paid improved sharply while prices received also jumped.

The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The Philadelphia Fed data can be found in Haver's SURVEYS database. The expectations forecast figures are from the Action Economics Forecast Survey in AS1REPNA.