Philly Fed Shows Cracks in Employment Picture

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The Federal Reserve Bank of Philadelphia has released its August Manufacturing Business Outlook Survey, showing that growth in the Fed district was rather weak for the manufacturing sector. In Thursday’s report, the index of current activity rose almost five points to just 2.0 in August, after a −2.9 reading in July.

Thursday’s report basically met expectations. The Bloomberg consensus estimate was 2.0, and the Econoday range quoted there was −5.0 to 5.5. Dow Jones (Wall Street Journal) also had a consensus of 2.0. While the headline was up, the reality is that orders and employment signaled contraction.

Employment indicators weakened considerably, with the employment index falling a whopping 18 points to −20.0. That was the largest negative reading for the current year. More data were cited as follows:

Although 67 percent of the firms reported no change in employment this month, the percentage reporting decreases (25 percent) significantly exceeded the percentage reporting increases (5 percent). The workweek index also fell, from -3.6 to -11.5. Twenty-five percent of the firms reported a decrease in average work hours, and only 13 percent reported an increase.

The share of firms reporting an increase in activity was 35%, and that barely beat the percentage of firms reporting a decrease in activity at 33%. More importantly, and to show how weak this reading’s trend has been, the Philly Fed showed that this gain in August was only the third positive reading in the current year.

Additional points were shown as follows:

  • The current new orders index dropped significantly from a reading of 11.8 in July to −7.2 in August.
  • The percentage of firms reporting an increase in new orders (27%) was less than a point lower than last month.
  • The percentage of firms reporting a decrease (34%) was 18 points higher than last month.
  • The current shipments index rose slightly, from 6.3 to 8.4.
  • The percentage of firms reporting an increase in shipments (35%) was six points higher than last month.
  • The indexes for unfilled orders and delivery times fell into negative territory, recording values of −15.0 and −3.8, respectively.
  • The index for inventories dropped from −4.3 to −9.2.
  • The indicators for unfilled orders, delivery times and inventories have been negative for most of this year.

Perhaps the good news was that the Philly Fed respondents do see growth ahead. Thursday’s report said:

The survey’s index of future manufacturing activity rose 12 points to 45.8 in August, strongly indicating that the current weakness is expected to be temporary. This index is at its highest reading since January 2015. Fifty-four percent of the firms expect an increase in activity over the next six months, up from 46 percent last month. Only 8 percent expect a decline, down from 12 percent last month. The future indexes for new orders and shipments also increased, rising 16 points and 24 points, respectively. The future employment index held relatively steady at 12.9.