The Federal Reserve Bank of Philadelphia’s Business Outlook Survey continued to show weaker activity in the region for the fourth consecutive month. The composite index of general business conditions improved from -12.9 in July to -7.1 in August. Almost 30 percent of respondents felt that the economic environment had worsened, with 48 percent saying indicating no change.
Other recent regional surveys have had similar downbeat assessments, including the Empire State survey released yesterday. Much of their negativity revolved around fewer new orders. The Philly survey also reports contracting new sales, with the index up from -6.9 to -5.5. Many of those other surveys, though, continue to show positive-but-easing levels of activity for many other measures, including employment and capital spending. The Philly one has declines across-the-board. Shipments, inventories, employment, and the average workweek were all in contraction territory.
With reduced levels of current activity, respondents were also less optimistic about future production. Manufacturers remain cautiously optimistic about the next six months, with the forward-looking composite index down from 19.3 to 12.5. Various indicators from new orders to employment to capital spending remain in strongly positive territory, even with some easing. In fact, almost 40 percent of those taking the survey anticipate increased new orders six months from now. Yet, it is also clear that “future indicators deteriorated,” as the write-up suggests.
Manufacturers have become more pessimistic in recent months as concerns about the future economic environment have become exacerbated. With the global economy slowing and the U.S. headed for a “fiscal cliff,” business and consumers remain on edge. The Philadelphia Fed’s survey backs up this anxiety, with leaders in the manufacturing sector clamoring for action sooner rather than later to address these challenges.
Chad Moutray is chief economist, National Association of Manufacturers.
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