The Federal Reserve Bank of Philadelphia’s Business Outlook Survey reflects a more negative view of the current economic environment in its region. The composite index of general business activity fell from 5.7 in October to -10.7 in November.

This is notable as last month’s improvement was a reversal of contractions seen in prior months. With November’s reading, the composite index has now been in negative territory for six of the past seven months.

Many of the key components of manufacturing activity reflect contraction. The index for new orders dropped from -0.6 to -4.6, suggesting shrinking sales levels. In fact, almost one-third of respondents said that their order rates were lower this month, with another 40.6 percent indicating no change. Shipments (down from -0.2 to -6.7) and inventory (down from 2.1 to -12.5) data also worsened.

Prices for raw materials grew and remain elevated. On the employment front, two-thirds of manufacturers indicated that the number of employees on their payrolls was unchanged in November, and on net hiring remains negative, with a slight improvement from October.

Forward-looking measures remain positive, but with significant easing from over the past couple months. The expected general business activity index for six months from now fell from 41.2 in September to 21.6 in October to 20.0 in November. While this still suggests strong growth, its pace has clearly diminished. This weaker pace is seen in indicators for new orders, shipments, hiring, and capital spending.

With that said, some of the measures for November improved over October readings, with the index for new orders growing from 21.2 to 24.5, for instance. Clearly, there continues to be some cautious optimism moving forward, even with increasing doubts and slowing current activity.

In a series of special questions on Hurricane Sandy, manufacturers were asked about its impact on their production. The average amount of time with reduced activity due to the storm was 2.2 days, with over 31 percent saying that they had reduced activity for 3 days or more. Of those who had to shut down entirely, the average time closed was 1.3 days. 

Chad Moutray is chief economist, National Association of Manufacturers.

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