In contrast to the Empire State survey released last week which found a rebound in manufacturing activity, the Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed contracting levels once again. In fact, the Philly Fed’s composite index of general business conditions declined from -5.8 in January to -12.5 in February, and it has been in negative territory for 7 of the past 10 months. Roughly half of the respondents to the latest survey said that the economic environment had not changed between January and February, with almost 32 percent suggesting it had decreased.

The principle driver of the lower figures in February – as it often is – was lower sales. The index of new orders dropped from -4.3 to -7.8. Nonetheless, there were some signs of modest improvements. The shipments index rose from 0.4 (essentially flat) to 2.4 (slight growth), and there was similar progress for delivery times, employment, and the average workweek. The workweek, though, continued to decline, albeit at a much slower pace. Meanwhile, inventories remain in contraction territory, and the pace of raw material price increases eased somewhat.

Even with the more-negative headline numbers, manufacturers in the Philadelphia Fed District were cautiously optimistic about future activity, even with a number of headwinds zapping current sentiment. In a series of special questions, nearly 54 percent of those surveys said that they expect production to increase in the first (and current) quarter of 2013 relative to what they were doing in the last quarter of 2012, compared to one-quarter who expect a decline. Looking forward to the next six months, the indicators for expected levels of activity remain strongly positive, with just over one half thinking that sales will improve and other measures higher across-the-board.

Chad Moutray is chief economist, National Association of Manufacturers.

 

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