The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to expand at a robust pace in May. The composite index of general business activity increased from 22.0 in April to 38.8 in May. February’s 43.3 figure was the highest reading since November 1983, and this latest figure was the best since then. The headline number in May was boosted by strong growth in shipments (up from 23.4 to 39.1), with the percentage of respondents suggesting that their shipments had increased rising from 38.5 percent in April to 48.4 percent in May. In addition, there were strong gains seen for new orders (down from 27.4 to 25.4), employment (down from 19.9 to 17.3) and the average workweek (up from 18.9 to 21.7), even with some easing in a couple of these measures. The rate of expansion for the average employee workweek was at a level not seen since October 1987.
Meanwhile, manufacturers in the Philadelphia Fed region remained quite optimistic about the next six months despite the forward-looking composite index falling from 59.5 in March, a 31-month high, to 34.8 in May. Nearly 55 percent of those completing the survey felt that new orders would rise over the next six months, with 48.8 percent predicting more shipments. More importantly, especially given the cautious hiring and investing seen over the past year, at least 37 percent of respondents see more employment and capital expenditures growth moving forward. On the downside, business leaders also see pricing pressures remaining elevated, even with some deceleration from previous months. In a series of special questions, firms see consumer prices increasing by 2.5 percent over the next year, with employee compensation increasing by 3.0 percent.
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