Philly Fed Remains Muted in June

The Federal Reserve Bank of Philadelphia reported its Business Outlook Survey for the month of June on Thursday morning. As we saw with the Empire Manufacturing report from the New York Fed on Wednesday morning, there was an unexpectedly higher gain. The General Business Conditions Index rose up to 4.7 in June from a prior reading of −1.8 from May.

Bloomberg was calling for a gain of only 0.8%, with an Econoday range of −3.4 to a gain of 3.9. Dow Jones had its expectations at only 0.0.

All in all, the tone of the Philadelphia Fed is that manufacturing firms within its district, which responded to the Manufacturing Business Outlook Survey, reported little real growth in June. Still, that diffusion index for current activity gain of almost seven points looks a lot better than the prior month’s trends. The Philly Fed summary noted:

This month’s Manufacturing Business Outlook Survey suggests tepid growth of the region’s manufacturing sector. The survey’s indicator for general activity returned to positive territory, but indicators for new orders, shipments, and employment remained negative. Though indicators for future conditions fell from last month’s readings, firms continued to expect future growth.

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Manufacturing firms were asked about how total production for the second quarter will compare with that of the first quarter. With this being based on a single question, investors and economists should know that the outcome may be quite different from actual conditions.

Other key components were as follows:

• New orders at −3.0, a second monthly contraction.
• Unfilled orders came in even weaker at −12.6.
• Shipments came in at −2.1 for the third month of contraction.
• Employment has been in contraction all year, showing a −10.9 reading.

Input costs did rise, reflecting gains in fuel and raw materials. Prices realized ticked higher as well. Other observations were that delivery and destocking times were shortening in June, indicating weakness. The six-month outlook remains muted, but most firms expect increased production in the third quarter of this year. The Philly Fed report said:

The share of firms reporting increases in second-quarter production (44 percent) was slightly greater than the share reporting decreases (40 percent). Looking ahead to the third quarter, 45 percent of the firms forecast acceleration in the rate of production, while 26 percent of the firms forecast deceleration. For those firms expecting to accelerate production, respondents indicated this would be achieved by increasing the productivity of current workers (42 percent) rather than increasing work hours of current staff (29 percent) or hiring additional workers (23 percent).

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