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First Cut: General business conditions improve for January manufacturing report from Philadelphia Fed

The general business conditions index in the Philadelphia Fed’s Manufacturing Business Outlook survey rose to 17.0 in January, up from 9.1 in December (previously 9.4, annual revisions issued on January 10). The index reflects perceptions of modest-to-moderate expansion for the District’s the factory sector. If the reading is off the highs of 2018, it is still one of healthy activity at the start of 2019.

The six-month outlook was also somewhat higher at 31.2 in January after 34.5 in December. This was a reading in line with the trend of the past four or five months and consistent with expectations for future temperate expansion.

The upward move in respondents’ sentiment was likely related to the sharp rise in new orders (21.3 in January versus 13.3 in December) that should keep production flowing for a while along with continued expansion in order backlogs (5.4 versus 9.1). Delivery times increased sharply (13.4 versus 5.5) possibly due to some recent contraction in suppliers’ inventories that occurred late in 2018. Inventories fell sharply (-7.6 versus 2.6) and was the first negative since -7.7 in November 2017.

The pace of new hiring slowed, but remained positive. The employment index slowed (9.6 in January versus 19.1 in December) and was the lowest since 9.6 in September 2017. Manufacturers in the District may be responding to a lack of workers with appropriate skills, but it also suggests that activity is expected to be less hectic going forward. The workweek continued to expand (6.0 versus 4.0), if also at a pace to indicate less activity.

Prices paid declined for a sixth month in a row (32.7 in January after 38.0 in December) and the lowest since 28.2 in December 2017. Declines in energy commodities are largely behind the recent downward movement. Prices received continued to expand at a more elevated trend, although these were down a bit (24.8 after 29.0).

The Philadelphia ISM-equivalent index dipped to 54.8 in January from 55.3 in December, pointing to the potential for a somewhat lower reading for the ISM Manufacturing Index from the December 54.1.  This echos the report from the New York District, if less loudly.

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