Regional Fed Manufacturing Reports Head in Opposite Directions

The live economic reports continue to be a very mixed bag. Some suggest that the recovery is stalling, while others indicate that the recovery remains on track. Two regional Federal Reserve reports from Thursday offer a better picture for the manufacturing sector in October. That said, the positive readings were moving in opposite directions.

The Federal Reserve Bank of Philadelphia reported that its Philadelphia Fed Manufacturing Index rose to 32.2 in October. This is handily higher than the 15.0 in the prior month, and Econoday had a consensus estimate of only 14.5. Data was collected between October 5 and October 13.

The Federal Reserve Bank of New York reported that its October Empire Manufacturing Index fell to 10.5 from 17.0 in September. While that is still above the breakeven line, it was four full percentage points short of the Econoday consensus.

Philadelphia Fed

One standout issue in the Philadelphia Fed report is that October marked the fifth consecutive positive reading since the lows in April and May. The percentage of firms reporting increases was 47%, and only 15% reported decreases in October. New orders led the way with a 17-point gain to a reading of 42.6. Current shipments also increased, and its index rose by 10 points to 46.5 in October.

One area of weakness in the Philly Fed report was in the employment component. The employment index fell three points to 12.7 in October, with employment gains reported by 23% of firms and decreases reported at 10% of the firms.

The Philly Fed report showed a modest uptick in prices paid and a dip in the prices received. The index for prices paid increased by three points to 28.5 in October. Nearly 29% of firms reported increases in input prices, and no firms reported price decreases. The current prices received index fell by four points to 14.0, with just 14% of firms reporting higher prices received for their own manufactured goods. Some 86% of firms reported no change in prices.

New York Fed

The October 2020 Empire State Manufacturing Survey pointed to a slower pace of growth than in September. New orders and shipments continued to show gains, but the New York Fed reported that unfilled orders continued to decline while inventories moved lower. Its regional manufacturing sector reported a small increase in employment and a significantly longer average workweek, and input prices and selling prices continued to increase slightly.

October’s general business conditions were the fourth consecutive positive monthly reading. Some 36% of respondents reported that conditions had improved over September, and 25% of firms reported that business conditions had worsened.

The new orders index rose by five points in October to 12.3, and the shipments index rose four points to 17.8. Delivery times were little changed, while unfilled orders and inventories declined. The index for number of employees rose by five points to 7.2, and the average workweek index was a sharp nine points higher to 16.1, a multiyear high reading.

While prices were higher on what was paid and received, the gains were small. The New York Fed showed that the prices paid index was little changed at 27.8. The prices received index of 5.3 indicated that there was only a small increase in selling prices.

While firms remained optimistic about future conditions, expectations were somewhat less positive in the region than last month. The New York Fed’s index for future business conditions fell eight points to 32.8 in October. The index for future employment ticked up to 23.2, and about 35% of firms now expect to increase employment levels in the coming months.

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