Regional Manufacturing Data Keeps Pointing to Strong Employment and Price Pressures in March

March 15, 2018 by Jon C. Ogg

With the markets worried about inflation creeping higher and about expected gross domestic product growth creeping lower, sometimes the markets have to digest regional data to see if some inferences can be drawn from regional Federal Reserve reports. Thursday’s economic reports included March manufacturing data from the Federal Reserve Banks in Philadelphia and New York.

The Federal Reserve Bank of Philadelphia reported in its Manufacturing Business Outlook Survey that economic growth continued in March. The index for current general activity remained positive with a March reading of 22.3, but the reading was a higher, 25.8, in February. Dow Jones had a consensus estimate calling for a March reading of 22.0. While this is a slower growth report, the firms continued to be optimistic for a six-month outlook for manufacturing in their region.

In the Philly Fed report for March, nearly 37% of the manufacturers reported increases in overall activity and just 14% reported decreases. The indexes for current new orders and shipments recorded notable improvements: the current new orders index increased 11 points, with 52% of the firms reporting an increase in new orders, and the shipments index increased 17 points.

And with so much focus on employment and price inflation, the Philly Fed said that nearly 35% of the responding firms reported increases in employment and 9% reported decreases this month. The current employment index edged slightly higher to 25.6, its highest reading in five months. Price increases for purchased inputs were reported by 44% of the manufacturers surveyed, but the prices paid diffusion index fell two points to 42.6, after having seen a seven-year high the prior month. The current prices received index fell by three points to 20.7.

And moving over the Federal Reserve Bank of New York, its Empire State Manufacturing Survey showed that business activity grew robustly in the state during March. The headline general business conditions index climbed nine points to 22.5. That is a gain of more than nine points from February’s reading, and Dow Jones had a consensus estimate of 15.0 for March.

In this report, the new orders index rose to 16.8 and the shipments index advanced to 27.0. Also, unfilled orders increased, delivery times lengthened and inventories edged higher.

And for labor and input prices, the New York Fed showed that market indicators showed an increase in employment and hours worked in the region and that the prices paid index moved up further after hitting multiyear highs in February. The New York Fed sees “ongoing and widespread increases in input prices” at a time that the prices received index held steady and suggested moderate selling price increases.

Firms remained optimistic about future business conditions, though less so than last month, and capital spending plans remained strong. Here is what the New York Fed said about regional price pressures:

The index for number of employees held steady at 9.4 and the average workweek index was little changed at 5.9 — readings that together signaled another month of increasing employment levels and hours worked. Input price increases continued to accelerate: the prices paid index edged up to 50.3, setting a new multiyear high. The prices received index held steady at 22.4, a level pointing to ongoing moderate selling price increases.

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