Philadelphia Fed Continues to Show Little or No Growth in May

The Federal Reserve Bank of Philadelphia has released its manufacturing business outlook survey results for the month of May. Manufacturing growth in the region was tenuous in May, but the diffusion index for current activity was in the red at −1.8 this month. Bloomberg had the consensus estimate up at 3.0, and the prior reading from April was −1.6.

Instead of improving as was expected, the report went deeper into the red. Manufacturing firms were asked about expected changes in prices received for goods and services over the next year.

Other broad indicators also reflected general weakness in business conditions. It was noted by the Philly Fed that the indicator for employment improved but remained negative. Manufacturers’ forecasts of future activity tempered slightly from last month, overall, but continue to suggest confidence in future growth.

The summary quote pretty much sums up this report, minus the overall negative disappointment:

This month’s Manufacturing Business Outlook Survey suggests essentially no growth of the region’s manufacturing sector. The survey’s indicators for general activity, new orders, shipments, and employment all remained negative. Though indicators for future conditions fell from last month, expectations for future growth continue to be positive.

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Additional data showed that the Philly Fed’s current indicators remain weak. These were shown as follows:

• The diffusion index has registered a negative reading in eight of the past nine months.
• The current new orders index decreased for the second consecutive month, from 0.0 to −1.9 in May.
• The current shipments index rose 10 points, but it was shown that the percentage of firms reporting a decline in shipments narrowly exceeded the percentage reporting an increase.
• The unfilled orders and delivery time indexes both remained in negative territory.
• The indicator for inventories rose notably to its highest reading in nine months but still registered a negative reading.
• The survey’s indicators of employment reflect similar weakness in May. Despite improving 15 points this month, the employment index registered its fifth consecutive negative reading, at −3.3.
• More than 69% of the firms reported no change in employment, but the percentage reporting decreases (17%) exceeded the percentage reporting increases (14%).
• The average workweek index ticked up one point but remained negative, but that was after a sharp drop the prior month.

Prices for inputs and for goods rose slightly, which is something that plays into the Federal Reserve’s current goal of a 2.0% to 2.5% inflation target. These were shown as follows:

• Firms reported increases in prices for their own goods, on balance.
• The prices received index doubled from last month, rising to 14.8. Slightly more than 20% of the respondents indicated increases in prices received.
• Nearly 74% reported no change in prices received this month.
• Input prices also rose, on balance, as 24% of the firms noted increases.
• The prices paid index was rose from 13.2 to 15.7.

Additional data showed that the manufacturing outlook remains positive. The future indicators fell from last month’s readings, but they continue to suggest that the current weakness is expected to be temporary. The diffusion index for future general activity fell from a 15-month high of 42.2 in April to 36.1 in May.