Philly Fed: Manufacturing Activity Rebounded Following Six Straight Months of Contraction

The Federal Reserve Bank of Philadelphia said that manufacturing activity rebounded in March following six straight months of contraction. The composite index of general business activity rose from -2.8 in February to 12.4 in March. This was an encouraging sign that manufacturers were starting to see some improvements in activity after months of weakness. Along those lines, new orders (up from -5.3 to 15.7) and shipments (up from 2.5 to 22.1) were each up strongly in March. Indeed, 36.7 percent of respondents in this survey reported increased sales in March, up from 28.3 percent in February, and the percentage citing declining orders dropped from 33.6 percent to 21.0 percent.

Nonetheless, there were also indicators showing lingering signs of softness. While the average workweek (up from -12.9 to 5.7) widened for just the second time in the past six months, employment growth (up from -5.0 to -1.1) remained in negative territory, albeit was some easing in the pace of decline. Two-thirds of those completing the survey said that hiring was unchanged in March, with 15.5 percent noting increased employment. Meanwhile, inventories (up from -17.1 to -12.7) contracted for the ninth consecutive month.

Looking ahead six months, manufacturers in the Philadelphia Fed district remain cautiously upbeat about activity in their economic outlook. The forward-looking composite index jumped from 17.3 to 28.8, its highest level in four months. Moreover, nearly 50 percent of respondents expect sales to increase over the next six months, with 47.1 percent predicting increased shipments. In addition, the outlook for both employment (up from 2.3 to 6.3) and capital expenditures (up from 2.5 to 13.3) accelerated for the month.

One-quarter of manufacturing leaders in the region anticipate a pickup in investment, and in a special question, capital expenditures for non-computer equipment and software are predicted to grow at a faster rate this year than last. However, there are pullbacks in investment seen for computers and related hardware, energy-saving investments and structures.


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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