Economy

Mixed Manufacturing Reports From New York and Philly Fed Reports, but Both Talk Up Inflation

Jon C. Ogg

Published: February 15, 2018 10:55 am

Last Updated: January 12, 2020 3:21 am

Thursday was a busy day for economic reporting. The good news, at least for the equity bulls, is that the growth metrics remain intact and the market is finally figuring out that it had been expecting inflationary pressures and higher long-term rates for all of 2017’s forecasting for the year and for years ahead. The Philadelphia Federal Reserve and the New York Federal Reserve have each released a key manufacturing report.

The Federal Reserve Bank of Philadelphia reported that regional manufacturing activity has continued to expand in February. The indexes for general activity, new orders and employment were all positive and increased from their readings in January.

The so-called Philly Fed’s Manufacturing Business Outlook Survey for current manufacturing activity rose by four points in February to a reading of 25.8. Bloomberg was calling for a reading of just 21.0. The indicators also remain at close to six-month highs, concerning firms’ overall expectations for manufacturing conditions over the next six months.

New orders were listed as surging at an index reading of 24.5, and unfilled orders were increasing fast with an index reading of 14.5. Hiring was high at 25.2, while the acceleration of shipments growth was almost cut in half to 15.5.

While the “special questions” are often ignored, this month’s pointed questions for the Philadelphia Fed pertained to how firms are forecasting price changes of their own products and for consumers over the next four quarters. This is an attempt to get businesses to forecast future inflation expectations, but it should be noted that this is just one Federal Reserve region and is not a national forecast. The Philly Fed’s price index was 23.9, and the price expectations are still increasing for both input costs and for prices to be realized.

Then there was the Empire Manufacturing Survey from the Federal Reserve Bank of New York. This is also a regional rather than national reading, but unlike the Philly Fed, was a disappointment despite growth trends remaining on track. The general conditions index fell to 13.1 in February from 17.7 seen in January.

In the New York Fed report on manufacturing, the new orders index and the shipments index were little changed, but the actual notes showed new orders were building and shipments remaining strong. There was also stronger hiring and average workweek numbers. Input prices and prices realized are also coming in hot. Here were some additional points made by the New York Fed on regional manufacturing in its district:

• 37 percent of respondents reported that conditions had improved over the month.
• 24 percent reported that conditions had worsened over the month.
• The new orders index was little changed at 13.5, and the shipments index was also little changed at 12.5.
• The unfilled orders index remained positive for a second consecutive month, reflecting a small increase in unfilled orders.
• The delivery time index rose 8 points to 11.1, a sign that delivery times lengthened.
• The inventories index declined but remained positive at 4.9, suggesting that inventory levels edged higher.

The New York Fed’s report on input prices signaled higher prices, and firms remained optimistic about future business conditions. The New York Fed said of February’s trends:

The index for number of employees rose to 10.9, signaling a modest increase in employment levels, and the average workweek index rose to 4.6, indicating that hours worked also climbed. Input price increases were noticeably higher. The prices paid index climbed twelve points to 48.6, its highest level in nearly six years. The prices received index held steady at 21.5, a level pointing to continued moderate selling price increases.

Looking ahead, firms continued to be optimistic about the six-month outlook. The index for future business conditions edged up two points to 50.5. The index for future delivery times reached a record high of 15.3, indicating that firms expected longer delivery times in the months ahead. The index for future prices paid stayed close to last month’s multiyear high, and the capital expenditures index, at 31.9, showed that firms’ capital spending plans remained strong.

Yet again, the markets are seeing strong fundamentals despite the panic selling in the first full week of February. There are always concerns that inflation could rise more than expected and the Federal Reserve might have to become more aggressive in raising its federal funds rate faster than expected. Then again, the Fed has said for years that it wanted higher inflation and that the economy just wasn’t delivering in the mandated target range of 2.0% to 2.5%.