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First Cut: Philadelphia Fed Non-Manufacturing Index up a bit in September

The Philadelphia Fed’s non-manufacturing index for September improved a bit to 9.5 from 7.5 in August. However, the underlying trend is only modestly expansionary. Nonetheless, the detail indexes in the District’s survey point to fairly stable conditions, a reassuring signal for the coming months. The general business activity index for six months from now popped back into positive territory at 17.3 in September from -0.7 in August. Some of the concerns about the future haven been allayed for the moment and activity is expected to remain in expansion, if middling at best.

The index for new orders was essentially unchanged at 9.7 in September from 9.4 in August, a pace that will keep businesses active. However, unfilled orders contracted at -0.6 in September after 1.1 in August, so there is less in the pipeline to sustain expansion should orders turn lower.

The index for full-time employment was unchanged at 22.1 in September, a respectable pace of hiring. However, the index for part-time employment was up sharply to 23.5 after 13.5 in the prior month. Businesses may prefer to hire part-time workers until it is clear that a recession is not imminent and/or trade policy is more settled. The index for wages and benefits was 36.1 in September after 43.2 in August and is part of an uneven trend to slower increases in compensation, although these remain better than much of the recovery from recession.

It also looks like businesses are cutting back on some spending plans for the present. The index for capital expenditures on premises was down to 13.4 in September after 15.9 in August, and for expenditures on equipment and softer was off at 18.5 from 29.7.

Unsurprisingly, the index for prices paid was down to 26.5 in September from 29.2 in August, probably reflecting lower energy costs. Prices received continued to decline for a third month at 12.0 after 14.0.

The Philadelphia index does not correlate well with the ISM Non-Manufacturing Index so the minor gain likely is not a signal that the national data will turn higher for September after the increase to 56.4 in August. There will be a better sense of the direction of the ISM data in the reports from the Richmond and Dallas Feds.

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