Philly Fed Manufacturing Index Falls in May
by:Sandy Batten
|in:Economy in Brief
Summary
- Even with the May decline, the index remains in positive territory, pointing to expansion.
- However, both shipments and orders subindexes fell markedly and more worryingly into contraction territory.
- The employment subindex rose slightly but remained negative.
- Expectations decline slightly but remain elevated.
The Federal Reserve Bank of Philadelphia reported in its May survey of manufacturing activity that the Current Activity Diffusion Index fell to 4.5 this month from 15.5 in April. The Action Economics Forecast Survey had anticipated a decline to 5.0. The Philly Fed survey responses were collected from May 6 to May 13. More than 29% of the firms reported increases in general activity this month (down from 38% last month), while 25% reported decreases (up from 22%); 46% reported no change (up from 40%).
The headline index reflects the answer to a single question on the state of economic activity. Haver Analytics calculates a composite index along the lines of the ISM PMI. That calculated index fell to 46.4 in May from 49.8 in April. This indicates that even though the headline index was above zero, the components pointed to a weaker Philly Fed district manufacturing sector.
The decline in May was led by significant weakness in shipments and orders. The shipments subindex plummeted to -1.2 in May from 19.1 in April while the new orders subindex fell markedly to -7.9 from 12.2. The employment subindex rose slightly in May but remained in negative territory at -7.9. This is the seventh consecutive month that the employment index has been negative, pointing to an ongoing decline in employment. Two-thirds of the firms reported no change in employment levels this month, while the share of firms reporting decreases (20%) exceeded the share reporting increases (12%).
On balance, the firms continued to report overall increases in prices. After rising 19 points last month, the prices paid index declined 4 points to 18.7 in May. Almost 19% of the firms reported increases in input prices, while none reported decreases. The current prices received index ticked up 1 point to 6.6. Almost 13% of the firms reported increases in prices received for their own goods while 6% reported decreases.
Expectations for business conditions in the next six months deteriorated slightly in May but remained elevated. The May reading was 32.4 versus 34.3 in April and 38.6 in March.
The indexes in this report are diffusion indexes and measure 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 figure is from the Action Economics Forecast Survey in AS1REPNA.
Sandy Batten
AuthorMore in Author Profile »Sandy Batten has more than 30 years of experience analyzing industrial economies and financial markets and a wide range of experience across the financial services sector, government, and academia. Before joining Haver Analytics, Sandy was a Vice President and Senior Economist at Citibank; Senior Credit Market Analyst at CDC Investment Management, Managing Director at Bear Stearns, and Executive Director at JPMorgan. In 2008, Sandy was named the most accurate US forecaster by the National Association for Business Economics. He is a member of the New York Forecasters Club, NABE, and the American Economic Association. Prior to his time in the financial services sector, Sandy was a Research Officer at the Federal Reserve Bank of St. Louis, Senior Staff Economist on the President’s Council of Economic Advisors, Deputy Assistant Secretary for Economic Policy at the US Treasury, and Economist at the International Monetary Fund. Sandy has taught economics at St. Louis University, Denison University, and Muskingun College. He has published numerous peer-reviewed articles in a wide range of academic publications. He has a B.A. in economics from the University of Richmond and a M.A. and Ph.D. in economics from The Ohio State University.
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