Philly Fed: Manufacturing Activity Began 2018 on a Solid Note, Even with a Little Easing in January

The Federal Reserve Bank of Philadelphia said that manufacturing activity began 2018 on a solid note, even with a little easing in several measures in January. The composite index of general business activity declined from 27.9 in December to 22.2 in January, which was its lowest level since August but continued to reflect optimism overall. (Note that these figures reflect a new seasonal adjustment update for all past data points.) To illustrate the improvements in manufacturing sentiment over the past year, the headline index averaged 27.4 in 2017, up from 4.9 in 2016, and this measure has indicated expanding levels of activity for 20 straight months. In December, the underlying data were mixed. Shipments (up from 23.9 to 30.3), the average workweek (up from 12.6 to 16.7) and raw material prices (up from 27.8 to 32.9) accelerated somewhat for the month; whereas, new orders (down from 28.2 to 10.1) and employment (down from 19.7 to 16.8) softened.

Meanwhile, manufacturers in the Philadelphia Fed region remained very upbeat in their outlook for the next six months, even with a slight weakening from the prior survey. The forward-looking composite index decreased from 52.7 to 42.2, but 53.6 percent and 57.0 percent of respondents felt that new orders and shipments would rise in the coming months, respectively. Moreover, at least 40 percent anticipate additional employees and capital spending. On the downside, pricing pressures (down from 56.0 to 54.2) were predicted to grow at an elevated pace, with raw material costs continuing to accelerate, even with a marginal easing in that index for December. In all, 54.6 percent of manufacturers completing the survey expect input costs to increase in the next six months, with just 0.4 percent seeing them declining.

In special questions, 71.7 percent of respondents said that there had been an increase in demand for manufactured products over the past several months, with 11.7 percent citing declines. In addition, 69.5 percent anticipate higher levels of production in the first quarter of 2018 relative to the fourth quarter of 2017, with 22.0 percent predicting weaker output growth.

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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