The two economic indicators released today were disappointing, showing continued weakness even as other data points show some improvements in manufacturing and the overall economy.
The Philadelphia Federal Reserve announced a surprisingly downbeat assessment in the May version of its Business Outlook Survey. The composite index fell from 8.5 in April to -5.8 in May. Several components reflect contracting activity, including new orders, inventories, prices received, employment and hours worked. Shipments data were the lone holdout, with a slight uptick in the growth rate.
This increased level of pessimism carried through to the forward-looking indicators as well. Manufacturers in the Philly region expect the growth rate to ease somewhat. The expectations composite index of general business activity plummeted to 15 in May from 33.8 in April. While new orders and shipments expectations remain strong, it is with a little less gusto. Still, only 15 percent of respondents expect new orders to decline in the next six months.
It was not necessarily good news for future employment growth. In a series of special questions, 54 percent of respondents expect for production in their company to increase, but only 20.7 percent of them anticipate hiring additional workers. An additional 22 percent plan to increase work hours without hiring additional people, with another 17 planning to increase production through productivity gains.
Meanwhile, the Conference Board reported that the Leading Economic Index (LEI) decreased 0.1 percent in April, after going up for six consecutive months. Manufacturing as one of the bright spots, though. Both the average workweek of production workers and manufacturing new orders provided positive contributions to the index. Credit availability was another positive.
Building permits, unemployment claims and consumer confidence dragged the measure lower. With that said, it could be argued that the building permit decline was linked to seasonal factors. Without the negative contribution from housing permits, the LEI would have gone up 0.1 percent.
The Coincident Economic Index, which looks at current conditions, rose 0.2 percent, with the four components all higher. Increased industrial production and manufacturing and trade sales were the largest contributors. Nonfarm payrolls and personal income numbers were also helpful.
Overall, these two figures provide mixed news for manufacturing. Whereas the Conference Board data show manufacturing continuing to lead growth, the Philadelphia Fed survey shows unexpected weakness in the sector, at least for that region. As such, the Philly report is in contrast to other recent data, such as the industrial production and Empire State manufacturing survey out this week, which have shown the sector increasing activity.
Chad Moutray is chief economist, National Association of Manufacturers.
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