The Federal Reserve Bank of Philadelphia reported an easing in manufacturing activity growth in November. The Business Outlook Survey’s composite index of general business activity declined from 19.8 in October to 6.5 in November. Before we get too worked up over the deceleration, though, it is important to note that the Philly Fed’s survey has been highly volatile lately, ranging from -12.5 in February to 19.8 in both July and October. In fact, the data in September and October were so strong (22.3 and 19.8, respectively) that a lower figure might have been expected.
Nonetheless, it was also clear that the pace of growth decelerated in the month. The index of new orders dropped from a whopping 27.5 in October to 11.8 in November. The percentage of respondents saying that their sales had increased in the month declined from 40.6 percent to 34.9 percent, and those suggesting that new orders declined rose from 13.0 percent to 23.1 percent. The shipments data (down from 20.4 to 5.6) followed suit.
The employment data also weakened. The index for the number of employees decreased from 15.4 to 1.1, and the average workweek shortened (down from 8.5 to -8.6). The manufacturers completing this survey who said that hiring had increased in November fell from 23.1 percent to 12.5 percent. Fortunately, the longer-term hiring responses were more uplifting. Over one-third of manufacturers in the Philly Fed region plan to add workers in the next six months, even as 57.8 percent expect to make no changes to employment.
The other forward-looking measures continued to be overwhelming positive in their outlook, albeit with some easing for the month. In all, 55.5 percent of respondents expect higher new orders over the next six months, with just 8.0 percent predicted lower sales. While this was down from two-thirds who forecasted increased new orders the month before, the fact is that manufacturers continue to be cautiously optimistic about the future. Shipments and capital expenditures are also expected to increase fairly strongly moving ahead.
Chad Moutray is the chief economist, National Association of Manufacturers.
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