The strong economy has finally started to show some weakness around slower global growth and trade tensions. After a very weak Empire Manufacturing report from the Federal Reserve Bank of New York, the Federal Reserve Bank of Philadelphia is also showing that current manufacturing trends are suggesting that growth has moderated in June.

The so-called “Philly Fed” report on manufacturing showed that manufacturing conditions in its region have weakened according to the businesses responding to its June Manufacturing Business Outlook Survey.

The Philly Fed’s diffusion index for current general activity decreased to just 0.3 in June from a reading of 16.6 in May. The Wall Street Journal had published a consensus economist target of 9.3 for June. Most of the survey’s future activity indexes were shown to have improved, but they continue to reflect muted optimism for the remainder of the year.

What should stand out here about the large drop is that the Philadelphia Federal Reserve Bank showed this to be the lowest reading since February when the index fell below zero for one month. That is not as extreme as the drop seen from the recent Empire Manufacturing report, but it is very close to contraction.

The indexes for current shipments and new orders also declined in June. Current new orders saw its index fall 3 points and the shipments index fell 11 points.

One area of strength remains in the employment data. Nearly 25% of firms reported increases in employment, and only 9% reported decreases in employment in June. That said, the employment diffusion index still fell by 3 points to 15.4 and the average workweek index fell 4 points to 7.3.

There may be some added challenges for the Federal Reserve’s 2% inflation targets as more firms reported lower prices. The current prices received index fell by almost 17 points to 0.6 for its lowest reading since October 2016. Price increases for manufacturers’ own goods were reported by only 10% of firms, down from 23% in May. Price increases for purchased inputs were reported by 28% of the manufacturers in June, and the prices paid index fell by 10 points to 12.9 — also the lowest reading since October 2016.

While most future indicators remain at relatively low readings, firms by and large expect production to see continued expansion next quarter. The Philly Fed report said:

The diffusion index for future general activity increased 2 points from its May reading but remains well below readings of the last few years. Nearly 40 percent of the firms expect increases in activity over the next six months, while 19 percent expect declines. The future shipments and new orders indexes also improved: The future shipments index increased 13 points, while the future new orders index increased 10 points. The firms remained optimistic overall about hiring over the next six months: The future employment index was virtually unchanged at 27.0, with over 35 percent of the firms expecting higher employment over the next six months. The future capital spending index improved 5 points to a reading of 28.0, near its average for this year.

Additional data were shown as follows for total production growth ahead:

• 50% of firms expected increases in second-quarter production versus 26% expecting decreases.
• For the third quarter, 49% of the firms expect an acceleration in the growth rate of production and 26% of firms expect a deceleration.
• Of those looking for gains, 35% expect to hire additional workers.
• The remaining firms indicated that they would increase the productivity of current workers (30%) or increase the work hours of current workers (27%) rather than increasing the number of workers.

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