The Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed some improvements in September, but with overall activity still contracting for the fifth month in a row. The composite index of general business conditions improved from -7.1 in August to -1.9 in September. It had been -16.6 and -12.9 in June and July, respectively, suggesting some progress in overall perceptions, even if they remain downbeat overall.
Various indicators of manufacturing activity reflected contraction across-the-board in September. Almost 38 percent of respondents said that their shipments declined this month, with about 43 percent saying there was no change. New orders weakened from 1.0 in August to -5.5 in September. Overall, new orders, shipments, inventories, employment, and the average workweek were all in contraction territory, reflecting recent weaknesses in the global and domestic marketplace. Meanwhile, the prices of raw materials escalated modestly, up from 8.0 to 11.2.
In a series of special questions, those taking the survey were asked to compare production in the third quarter versus the second quarter. Almost 47 percent of them said that their production would be lower, with the average suggesting a decline of 0.7 percent. Likewise, 44.9 percent of respondents expected their production to fall even further in the fourth quarter.
In light of these responses, it not surprising that the forward-looking measures reflect a diminished degree of positivity. The index of business conditions six months from now dropped from 41.2 in August to 12.5 in September. While manufacturers are cautiously optimistic about the future (with more expecting positive changes than negative), all of the measures of activity eased significantly this month. The only exception was capital spending, which rose from 4.8 to 9.1.
Chad Moutray is chief economist, National Association of Manufacturers.