The Federal Reserve Bank of Philadelphia’s Business Outlook Survey contracted again in May, declining for the first time since February. The composite index of general business conditions declined from 1.3 in April to -5.2 in May. The index was brought lower by reductions in new orders, shipments, and employment. Specifically, the new orders index dropped from -1.0 to -7.9, with over one-third of respondents saying that their sales had declined in the past month.
The indices looking at current activity declined, indicating some sluggishness this month. For instance, the shipments index shifted from modest growth in April (9.1) to a modest contraction in May (-8.5). The percentage of respondents saying that their shipments had declined from the previous month increased from 18.8 percent in April to 32.4 percent in May. The average workweek, unfilled orders, and delivery times were all negative, as well.
Unlike the Empire State Manufacturing Survey from the New York Fed, which was released yesterday, manufacturers in the Philly region were hiring fewer workers in May. The index for employment declined from -6.8 to -8.7. The two surveys did agree, though, on the forward-looking hiring measures. The index of expected employment six months from now rose from 8.2 to 10.0, suggesting that manufacturers plan to increase their hiring in the coming months moderately.
Indeed, manufacturers in the Philly Fed region remain cautiously optimistic about the future. The general business activity measure for six months from now rose from 19.5 to 32.3. Almost 45 percent of those completing the survey anticipate better economic conditions in the coming months, with 36.3 expecting them to be the same. Manufacturers are also planning for increased sales, shipments, and capital spending in the second half of 2013.
Regarding inventories, 58.1 percent of those answering a special question on the topic said that their stockpiles were “about right for current economic conditions.” Just over one-quarter of them expect to decrease their inventories in the second quarter, and in fact, the forward-looking index for inventories reflects a slight contraction.
Chad Moutray is the chief economist, National Association of Manufacturers.