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First Cut: Philadelphia Fed manufacturing survey mixed, but still solid overall

The general business conditions index in the Philadelphia Fed’s Manufacturing Business Outlook declined to 9.4 in December from 12.9 in November. The back-to-back lower readings than have been typical for the past year suggest that activity – or at least sentiment about activity – has slipped to an underlying pace that is more modest, but still expanding respectably.

The index is not computed from components and these tell a somewhat more upbeat story about the District’s manufacturing sector. Two subindexes that line up with expansion rose. New orders had a solid 5.4 point gain to 14.5, a healthy level. Employment continued to be quite active with a 2.0 point rise to 18.3 and in line with recent months. The workweek declined 5.8 points to 0.5 in December, its lowest since -2.2 in October 2016. It would appear that businesses are relying on expanding payrolls to meet production. Delivery times were up 1.7 points to 6.7, not indicating significant bottlenecks in the supply chain, but also indicating some waits for goods and services. Shipments were down a sharp 11.6 points to 10.0. This may reflect a pause after two very strong months.

Prices paid moderated to 38.0 in December from 39.3 in November. However, growth in prices haven’t varied much for the past four months. Pass through of price increases continues. Priced received were up 4.3 points to 26.2 in December. These may jump again in January when new contracts go into effect. Many businesses have indicated they were negotiating terms to allow for higher prices related to trade and tariffs.

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