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Philly Fed: Manufacturing Activity Continues to Expand

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The Federal Reserve Bank of Philadelphia reported continued strength in the manufacturing sector in its District in October. The Business Outlook Survey’s composite index of general business activity eased down somewhat from 22.3 in September to 19.8 in October. Even with the lower figure, it suggests that manufacturing activity continued to expand, building on the pickup seen since the late spring. This was the fifth consecutive month with positive growth in the sector, with the composite index averaging a healthy 16.7 over that time.

The data in September were surprisingly strong, with activity at its fastest pace since March 2011. The good news was that the October figures mostly extended those gains. For instance, the index for new orders rose from 21.2 to 27.5. Those respondents saying that their sales had increased over the past month increased from 38.5 percent to 40.6 percent, with those suggesting declines down from 17.3 percent to 13.0 percent. This suggests that there is still progress to be had, but it was an improvement nonetheless.

The other measures were mixed, with positive news overall. The pace of shipments (down from 21.2 to 20.4) and the average workweek (down from 12.2 to 8.5) were slightly lower, but hiring accelerated (up from 10.3 to 15.4). Even with the better employment numbers, though, it is notable that 69.2 percent of those taking the survey had no change in hiring levels in October. This indicates a continued skittishness, even as there were modest gains.

Moving ahead, manufacturers in the Philly Fed region were overwhelmingly positive in their outlook. The forward-looking composite index of business activity for the next six months rose from 38.9 to 58.2. To illustrate just how upbeat they were, 67.4 percent of manufacturing respondents anticipate increased new orders in the coming months, with just 3.7 percent saying that their sales might decline. Similarly healthy figures were recorded for shipments, and other measures of activity also reflecting strong growth across-the-board. This includes hiring (with 36.5 percent planning to add new workers) and capital spending (with 34.8 percent expecting to increase expenditures).

One caveat is that this data does not seem to include any pullback from the government shutdown. Note that New York Federal Reserve’s similar survey found some diminished sentiment due to the fiscal uncertainty just a couple days ago, with the Beige Book also expressing some worries. This could temper some of these results, but it should not diminish the fact that Philadelphia area manufacturers have seen increased activity over the past few months, with healthy cautious optimism ahead.


Manufacturing Activity Improves in December in Philly Region

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The Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed improvement in December. The composite index of general business activity increased from -10.7 in November to 8.1 in December, only the second time in eight months that this index has been positive. It is important to note, as well, that November’s reading was adversely affected by Hurricane Sandy and slowdowns in production. This suggests that manufacturers in the district have rebounded from those impacts.

Stronger sales growth was behind these figures, as well. The index of new orders rose from -4.6 to 10.7, with almost 32 percent suggesting that orders were higher in December than the month before. Given that November’s report mostly showed contractions across-the-board, there was progress in most of the measures this time, with only inventory growth and delivery times still negative. Stronger growth was seen in shipments, employment, and the average workweek. Looking ahead six months, capital spending plans were also higher, as were expectations for manufacturing activity.

Almost half of the respondents anticipate raw material prices to increase, with roughly 41 percent suggesting no change in the prices they pay for inputs. In a series of special questions, manufacturers said that they expect energy costs to rise 0.8 percent on average, with other raw materials up 2.6 percent. They also anticipate wages and health benefits to rise 2.1 percent and 7.2 percent, respectively.

In general, the December survey indicates that manufacturing activity has picked up in the Philadelphia region, with modest growth expected in the coming year. Overall, though, the district’s production has been choppy at best over the course of the second half of 2012, with at least part of the progress in December stemming from the rebound in activity after Hurricane Sandy. Growth in the months ahead will hinge on moving on from the current economic uncertainties present in the larger macroeconomic picture, even as respondents to this survey were more upbeat about their prospects for the next six months.

Chad Moutray is the chief economist, National Association of Manufacturers.


Philly Fed Shows Reduced Manufacturing Activity in November

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The Federal Reserve Bank of Philadelphia’s Business Outlook Survey reflects a more negative view of the current economic environment in its region. The composite index of general business activity fell from 5.7 in October to -10.7 in November.

This is notable as last month’s improvement was a reversal of contractions seen in prior months. With November’s reading, the composite index has now been in negative territory for six of the past seven months.

Many of the key components of manufacturing activity reflect contraction. The index for new orders dropped from -0.6 to -4.6, suggesting shrinking sales levels. In fact, almost one-third of respondents said that their order rates were lower this month, with another 40.6 percent indicating no change. Shipments (down from -0.2 to -6.7) and inventory (down from 2.1 to -12.5) data also worsened.

Prices for raw materials grew and remain elevated. On the employment front, two-thirds of manufacturers indicated that the number of employees on their payrolls was unchanged in November, and on net hiring remains negative, with a slight improvement from October. Read More

Downbeat Economic News from Philly Fed, Continued Weaker Activity

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The Federal Reserve Bank of Philadelphia’s Business Outlook Survey continued to show weaker activity in the region for the fourth consecutive month. The composite index of general business conditions improved from -12.9 in July to -7.1 in August. Almost 30 percent of respondents felt that the economic environment had worsened, with 48 percent saying indicating no change.

Other recent regional surveys have had similar downbeat assessments, including the Empire State survey released yesterday. Much of their negativity revolved around fewer new orders. The Philly survey also reports contracting new sales, with the index up from -6.9 to -5.5. Many of those other surveys, though, continue to show positive-but-easing levels of activity for many other measures, including employment and capital spending. The Philly one has declines across-the-board. Shipments, inventories, employment, and the average workweek were all in contraction territory.

With reduced levels of current activity, respondents were also less optimistic about future production. Manufacturers remain cautiously optimistic about the next six months, with the forward-looking composite index down from 19.3 to 12.5. Various indicators from new orders to employment to capital spending remain in strongly positive territory, even with some easing. In fact, almost 40 percent of those taking the survey anticipate increased new orders six months from now. Yet, it is also clear that “future indicators deteriorated,” as the write-up suggests.

Manufacturers have become more pessimistic in recent months as concerns about the future economic environment have become exacerbated. With the global economy slowing and the U.S. headed for a “fiscal cliff,” business and consumers remain on edge. The Philadelphia Fed’s survey backs up this anxiety, with leaders in the manufacturing sector clamoring for action sooner rather than later to address these challenges.

Chad Moutray is chief economist, National Association of Manufacturers.

Slower Manufacturing Activity Seen in Philly Fed, Markit PMI Surveys

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Two surveys released this morning both show weaker manufacturing activity, continuing an ongoing trend. Anxieties about Europe and slowing growth in the U.S. and elsewhere appear to have dampened overall enthusiasm among many in the manufacturing community.

First, the Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed contracting activity in its region. The composite index of general business conditions was negative for the second month in a row, as the net percentage of respondents viewing their conditions favorably dropped from -5.8 in May to -16.6 in June.

Many of the measures reported lower levels of activity. For instance, the net percentage of those reporting increased new orders fell from -1.2 to -18.8. To arrive at this figure, just 21.4 percent said that they were experiencing increased new orders, with 40.2 saying that their new sales were declining. Similar trends were seen in shipments, delivery times, and the average workweek. Net hiring remained positive but only barely. Almost three-fourths of manufacturers report no changes in their employment. Read More

Philadelphia Fed Reports Softer Growth, But a Pickup in Hiring

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The Federal Reserve Bank of Philadelphia’s Business Outlook Survey found that manufacturing conditions were softer in April after improving each of the previous four months. The composite index of general business conditions was lower-than-expected, falling from 12.5 in March to 8.5 in April.

Many of the measures of activity showed easing of growth rates from the past survey, including slower paces for new orders, shipments and the average workweek. The number of employees bucked that trend, with the index for employment up from 6.8 to 17.9, its highest level since May 2011. This suggests a faster pace of net job creation, a welcome sign for the region.  Pricing pressures were also present, with a slight acceleration in the index for the price of raw materials.

The forward-looking indices continue to show a positive outlook six months from now. Only 13.2 percent of respondents have a negative view of future activity, with over half of them expecting increased new orders. Employment and capital spending is also expected to be higher for roughly one-third of manufacturers in the region.

In other news, the Conference Board reported that the Leading Economic Index increased 0.3 percent in March, slower than the 0.7 percent gain in February. Still, this was the sixth consecutive month of gains, suggesting continued modest growth in the economy.

The largest contributors to the March increase were favorable lending conditions, higher stock values and improved building permit activity. Manufacturing provided a modest drag for the month, with a shorter average workweek for production workers outweighing mixed reports on new orders. A drop in consumer confidence also weighed on the index.

Looking at the current environment, the Coincident Economic Index was up 0.2 percent, similar to last month. In this case, increased manufacturing and trade sales were the largest factor in the increase, adding 0.11 percent to the index. Higher nonfarm employment and personal income figures were also helpful, with flat industrial production numbers providing no contribution.

Chad Moutray is chief economist, National Association of Manufacturers.

Philadelphia Fed Manufacturers More Positive, But With Slower Pace of Growth

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The Federal Reserve Bank of Philadelphia reported that manufacturing sentiment was higher in March than in February. The index for business activity rose from 10.2 to 12.5, the fourth consecutive monthly gain.

Despite the growth in overall economic confidence, several indicators show an easing of growth this month. For instance, the index for new orders dropped from 11.7 to 3.3. Similar drop-offs were seen among shipments and the average workweek. On the bright side, inventories and the number of workers accelerated.

In contrast with other news out today, the pace of growth for the cost of raw materials slowed after jumping significantly last month. Still, raw material costs remain elevated and are expected to continue to grow.

Manufacturers in the Philly region remain very positive, with growth in measures for future new orders, shipments, employment and capital spending. Some of these indicators eased in March, but each remains strong in terms of expectations.

Nonetheless, in a series of special questions, fewer manufacturers anticipate higher production in the second quarter of 2012 than from the same time last year. The average expected growth for the Q2 in 2012 is expected to be 1.4 percent, versus the 2.7 percent anticipated last year. Note that production slowed in mid-2011, which was not anticipated, due to a number of factors.

In regard to this year’s growth, nearly 58 percent of respondents said that this was an acceleration in production due largely to improved business conditions. So, while the 2012 figure was lower than the one for 2011, the trend represents an improvement in activity.

Chad Moutray is chief economist, National Association of Manufacturers.

Weekly Economic Report – March 12

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With consumers and businesses more confident, the U.S. economy continues to expand modestly. An improved – but still weaker-than-desired – jobs picture is part of that. The U.S. added 227,000 net new jobs in February, or 1.2 million in the past six months. Manufacturing has played a significant role in the recent rebound and since the end of the recession. In fact, over the past three months, manufacturers have added 111,000 new workers as overall activity has picked up. The manufacturing sector has contributed over 13 percent of all net new jobs created in the nonfarm economy since December 2010.

To be fair, the recent job gains in manufacturing have not been as broad-based as we might prefer. They have stemmed primarily from durable goods producing industries, with nondurables continuing to lag. This trend has been fairly consistent over the past two years, yet it would be nice to see greater employment gains across-the-board. Of course, this also mirrors industrial production data, with stronger growth tending to concentrate among the motor vehicle, aerospace, fabricated metals, machinery and primary metals sectors.

One of the larger threats to growth is a slower global economy. Mario Draghi, the European Central Bank president, announced a lower forecast for real GDP growth, with output slightly contracting for the continent as a whole this year. Meanwhile, other economies are also slowing. China, for instance, just cut its growth target to 7.5 percent. This slower growth shows up in the international trade figures released on Friday. Goods exports dropped in most regions of the world, including those to China and Europe. Increased imports of petroleum were another factor, with the overall trade deficit widening for the third consecutive month.

This week, we will gain further insights into the strength of the current rebound. New industrial production figures will be released on Friday, following regional survey data from New York and Philadelphia. The Federal Reserve Board will also announce on Tuesday whether or not it intends to pursue any new monetary policies. As always, the Fed will be mindful of inflation, and later in the week, the Bureau of Labor Statistics will issue updates on both consumer and producer prices. In addition to those releases, other highlights for the week include updates on consumer and small business sentiment, job market turnover and retail sales.  

Chad Moutray is chief economist, National Association of Manufacturers.

Monday Economic Report

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The U.S. economy continues to expand, with last week’s manufacturing and housing indicators showing progress. While the top-line industrial production figure was unchanged, manufacturing production rose a healthy 0.7 percent in January, led by strong growth in the durable goods sectors. Manufacturers are producing 4.7 percent more than one year ago, and capacity utilization rates also are up significantly. Similar findings were observed in the New York and Philadelphia Federal Reserve Bank regions, which showed expanding activity and mostly positive trends moving forward.

News from the housing market was also more upbeat. Housing starts rose to nearly 699,000 new units in January, and with some revisions, new residential construction topped 700,000 in November – the highest level since October 2008. These figures remain well below the levels of a few years ago, yet it is nice to see the trend line moving higher. Data from the National Association of Home Builders echo these findings, with its Housing Market Index up from 14 in September to 29 in January. Still, significant financial obstacles continue to challenge many would-be homebuyers and hold back growth.

Despite continued anxieties, the American consumer has begun spending again, with retail sales up 0.4 percent in January. This trend can also be seen in the pricing data. Higher traffic in restaurants and hotels, for instance, has helped to increase these costs. Both consumer and producer prices rose in January and were lifted by larger food and energy expenses. Yet, a mild winter has helped to mitigate the run-up in gasoline prices, with home energy costs lower. Inflationary pressures remain modest, despite the fact that core inflation remains above 2 percent.

This week, only a handful of economic reports will be released. In addition to some housing data, we will learn about manufacturing activity in the Kansas City Federal Reserve Bank region, and the Chicago Fed will likely highlight continued progress in the economy with its National Activity Index.

Chad Moutray is chief economist, National Association of Manufacturers.

Housing Starts, Philly Fed Manufacturing Activity Both Higher

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The Census Bureau reported higher housing starts figures in January, up to 699,000 from a revised 689,000 in December. This increase stemmed from multi-family home construction, which rose from 176,000 to 191,000. Single-family new starts fell from 513,000 to 508,000 for the month, and the number of completions fell sharply. On the bright side, housing permits for single family residences were up slightly — a sign of progress moving forward.

Note that many of the data points for 2011 were revised upward. Overall starts in November, for instance, topped 700,000 for the first time since October 2008. These figures clearly show an upward trajectory, with total housing starts up nearly 10 percent year-over-year. Regionally, gains in the South and West were somewhat offset by less new residential construction in the Northeast and Midwest. For January, though, only the Midwest had declines.

This news mirrors similar data released yesterday by the National Association of Home Builders (NAHB). Its housing market index rose from 25 to 29. This represents a significant improvement in builder confidence in the past few months as the index was 14 in September. Single-family sales rose, and expectations are higher for the next six months.

NAHB Chief Economist David Crowe trumpets the positive trend, but he also cautions us to keep the numbers in perspective. “… it is important to remember that the HMI is still very low, and several factors continue to constrain the market. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage.”

In other news today, the Philadelphia Federal Reserve Bank reports continued improvements in manufacturing activity in its region. The index of general business conditions rose from 7.3 in January to 10.2 in February. This is the fifth consecutive month of expanding production, with higher measures for new orders, shipments and the average workweek. The rate of job growth eased, though, and inventories were shrinking. (The latter is a positive sign of the increased activity.) Pricing pressures accelerated.

Looking ahead six months, the respondents remained very positive about future activity, but less so than last month. The expectations index of general activity fell from 49.0 to 33.3. This coincided with lower values for new orders, shipments and capital spending plans. But, employment measures were stronger, suggesting an increased willingness to hire additional workers in the coming months. I would not overplay the news that this figure declined by too much, however, as it mostly reflects a settling in of the overall improving trend. Only 12.9 percent of those taking the survey expect for activity to decline in the next few months.

Overall, the numbers released today and yesterday highlight a recovering economy, with manufacturing leading the way. Improvements in housing are also a welcome sign, even as the sector remains below its historical averages.

Chad Moutray is chief economist, National Association of Manufacturers.