Philly Fed: Manufacturing Activity Contracted for the Fifth Straight Month in January

The Federal Reserve Bank of Philadelphia said that manufacturing activity contracted for the fifth straight month in January. The composite index of general business activity rose from -10.2 in December to -3.5 in January, and yet, the headline figure has now been in negative territory since September. (Note that prior data reflect an annual revision for seasonal adjustments.) The underlying data were mixed. The pace of decline for new orders (up from -11.1 to -1.4) slowed in this latest report. In contrast, labor market data worsened for the month, including hiring (down from 2.2 to -1.9) and the average workweek (down from 0.6 to -2.2). On the positive side, shipments (up from -2.1 to 9.6) picked up at a decent rate, expanding after three consecutive months of declines.

Overall, this report continues to reflect soft conditions in the Philly Fed region, with the strong dollar, soft exports markets and reduced commodity prices dampening activity. On the latter point, respondents were asked about the effects of falling energy prices in a series of special questions, and the impacts varied widely. Just over half of those completing the survey said that falling energy prices were a positive for their firm, but 30.4 percent reported that they were a negative. Along those lines, 42.0 percent of respondents cited decreased demand from energy production-related customers; whereas, 40.6 percent reported that reduced energy costs had lowered their costs of production.

Looking ahead six months, manufacturers in the Philadelphia Fed district remain cautiously upbeat about activity in their economic outlook. The forward-looking composite index declined from 24.1 to 19.1, but the data continue to indicate relatively strong growth expectations for new orders (down 34.5 to 21.1) and shipments (down from 36.6 to 22.0), albeit with less enthusiasm than in prior releases. Over 40 percent of respondents, for instance, anticipate increased demand in the next six months. Similarly, business leaders plan for positive growth in employment (down from 7.0 to 5.5), the average workweek (up from 0.2 to 2.1) and capital spending (down from 10.7 to 9.4), even with some easing in a couple of those indicators.


Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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