Philly Fed Shows Unexpected Return to Growth in Manufacturing

Is it possible that we can get good news from the manufacturing sector? That has seemed impossible of late, but the Philadelphia Federal Reserve’s Manufacturing Business Outlook Survey showed that manufacturing conditions in the region improved in March.

The diffusion index for current activity rose sharply, up to 12.4 in March from -2.8 in February. If you look at the consensus estimates, this number was shown to be wildly ahead of expectations. Bloomberg had its consensus estimate at -1.4 and Dow Jones had its consensus estimate at -2.0 for March.

Manufacturing firms were asked about their plans to adjust capital expenditure in 2016, and what stands out is that the indicator for general activity was the first positive reading in seven months.

The indexes for shipments and new orders also rose. Manufacturing firms continued to report overall weak employment, but the survey’s future indicators also showed significant improvement this month.

Both the current new orders and shipments indexes also showed improvement this month. The current new orders index returned to positive territory, increasing 21 points to 15.7. Nearly 37% of the firms reported an increase in new orders this month. The current shipments index rose 20 points, to 22.1.

The unfilled orders and delivery time indexes rose 11 points and 16 points, respectively. While the unfilled orders remained slightly negative, the delivery time index reached its first positive reading in 11 months. Firms continued to report overall declines in inventories.

The indicators of employment improved but suggest continued weakness, rising four points to -1.1.

About 67% of the firms reported no change in employment this month, and the percentage reporting decreases (17%) was slightly larger than the percentage reporting increases (16%).

Firms reported a slight rise in average work hours, with the workweek index rising 19 points for its first positive reading in three months.

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