Philly Fed Manufacturing Index Falls Markedly in August
by:Sandy Batten
|in:Economy in Brief
Summary
- The headline index unexpectedly slumped to -7.0 in August from 13.9 in July.
- The first negative reading since January.
- However, the ISM PMI version calculated by Haver remained above 50 at 52.5.
- Employment fell to back below zero.
- Expectations also fell markedly.
The Federal Reserve Bank of Philadelphia reported in its August survey of manufacturing activity that the Current Activity Diffusion Index slumped to -7.0 in August from 13.9 in July. This was the first negative reading since January. The Action Economics Forecast Survey had anticipated a modest decline to +6.5. Nearly 18% of the firms reported increases in general activity this month (down from 39% last month), while 25% reported decreases (unchanged) and 53% reported no change (up from 29%). The survey responses were collected from August 5 to August 12.
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 slipped to 52.5 in August from 54.9 in July but remained above the critical 50 value that separates expansion from contraction. The fact that this measure remained above 50 indicates that the components of the report were not as weak as indicated by the headline index.
Looking at the details, the new orders and shipments indexes, while declining in July, remained in positive territory for the second consecutive month. New orders fell to 14.6 from 20.7 in July while shipments declined to 8.5 from 27.8 in July. However, employment weakened notably. Respondents reported a decline in employment, on balance, in August after reporting an overall increase last month. The employment index returned to negative territory, falling to -5.7. Nearly three-quarters of the firms reported no change in employment levels this month, while the share of firms reporting decreases (16%) exceeded the share reporting increases (10%). The average workweek index ticked down to -2.3.
On balance, the firms continued to report overall increases in prices. The prices paid index moved up 4 points to 24.0. More than 31% of the firms reported increases in input prices, while 7% reported decreases and 58% of the firms reported no change. The current prices received index fell 10 points to 13.7, undoing its increase from last month. Over 18% of the firms reported increases in prices received for their own goods, 5% reported decreases, and 73% reported no change.
Expectations for business conditions in the next six months fell markedly in August. The diffusion index for future general activity declined from 38.7 to 15.4 in August, mostly offsetting its increase from last month. The share of firms expecting an increase in activity over the next six months (37%) exceeded the share expecting decreases (21%); 37% expect no change.
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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