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First Cut: April Philadelphia Fed survey of manufacturing shows conditions fairly stable, modestly expansionary

The general business conditions index in the Philadelphia Fed’s Manufacturing Business Outlook was 8.5 in April after 13.7 in March. Although the index was lower, it was still consistent with modest expansion. The index for future business conditions was also a bit lower, dipping to 19.1 after 21.8. However, it indicated modest expansion is expected to continue. The heights of 2018 are unlikely to be revisited, but growth will not be absent.

Supporting present business conditions — and making it possible that the May report will increase — was a jump in new orders in April to 15.7 from 1.9 in March. Order backlogs declined to 0.4 from 3.1. Shipments were about on pace at 18.4 after 20.0. Employment gained a bit to 14.7 from 8.8, and the average workweek expanded slightly to 11.2 from 10.6. Delivery times dropped back to -5.1, a substantive slowing from 8.8 in March, and possibly reflecting that backlogs across the manufacturing sector have shrunk. Inventories narrowed to 2.6 in in April, drawn down significantly from the 17.2 in March.

Prices paid were up a bit to 21.6 in April from 19.7 in March, but overall are little changed in recent months. Rises in energy prices may be seeping into input costs. Prices received slipped to 20.0 after 24.7, suggesting that the pricing power was fading, although it remains relatively high compared to most of the post-recession period.

The Philadelphia ISM-equivalent index was 54.6 in April, down from 55.8 in March. The decline in delivery times and inventories accounted for the lower reading. The Philadelphia calculation has a fairly strong correlation to the ISM report and suggests that when the ISM Manufacturing Index is released at 10:00 ET on Wednesday, May 1, it will be a bit lower than the 55.3 in March. However, the drop in the Philadelphia subindexes for delivery times and inventories may overstate any softening in the national report.

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