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.