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First Cut: Philadelphia Fed Nonmanufacturing Index shows activity and the outlook are falling

The Philadelphia Fed’s general business activity index for June fell to 8.2 after 17.3 in May and was down for a fourth month in a row. Conditions were stronger in March through May, probably front-loading some activity in the face of expected higher tariffs and greater economic uncertainty. The index for future general business activity fell to 12.2 in June, losing momentum for a third straight month. Both indexes are not as weak as they were during the period associated with the partial federal government shutdown, but these readings do suggest that the underlying pace of growth has faded considerably is is more like the closing of 2018.

The subindexes actually point to continued modest expansion, but are likely more subject to month-to-month volatility than in 2018 when conditions were solid at home and abroad.

New orders actually rose (14.3 in June after 10.6 in May) and unfilled orders (4.4 after 1.8) put some work on the books to keep activity going. Inventories were again above neutral (2.9 after -3.2) but not enough to raise the alarm about unwanted buildup in stocks.

Employment firmed in June. Full-time employment was up (23.8 after 20.5) and part-time reflected demand for summer workers (20.2 after 11.3). Moreover, upward pressure on wages and benefits turned higher (43.6 after 38.9). The workweek expanded less rapidly (18.9 after 24.9), suggesting that payrolls are closer to meeting businesses’ needs.


Prices paid were down in June (22.3 after 25.9), extending the downward movement to a fourth month on declining gasoline prices. Prices received (8.8 after 20.1) indicated that businesses are losing pricing power, although it is not wholly absent.

The Philadelphia non-manufacturing index has a low correlation to the ISM Non-Manufacturing Index. The sharp decline may not signal broader softening at the national level. The same might be said for the drop in the New York Fed’s general business activity index for services to 5.8 in June after 20.6 in May. However, taken in conjunction, this sets expectations for ISM number at 10:00 ET on Wednesday, July 3 on a more down note from the 56.9 in May.

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