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First Cut: Philadelphia Fed manufacturing general business conditions continue modest expansion in November

The general business conditions index in the Philadelphia Fed’s Manufacturing Business Outlook for November rose to 10.4 from 5.6 in October. While the index points a slight improvement for perceptions of current conditions, those for six months from now were only a bit higher at 35.8 in November after 33.8 in October. It may be that some uncertainties about conditions have retreated even as underlying activity is not much changed.

The index is not computed from components and may tell a different story from the detail indexes. That is the case in November where expansion by-and-large remained in place but at a slower pace than the previous month.

Significantly, the new orders index fell to 8.4 in November after 26.2 in October and was the lowest since 8.3 in June.  The level of the unfilled orders index was down to 6.0 after 18.8 in the prior month. It is not unusual for orders to ease up in the winter months, but without a lot of backlog, it is harder to maintain even a middling pace of activity. Order shipments fell to 9.8 in November from 18.0 in October and were the lowest since -5.3 in February.

Employment declined to 21.5 in November after 32.9 in the prior month while the workweek expanded at 5.2 after 10.8. This was the slowest workweek since 4.7 in February. To some extent businesses are relying on new and existing workers to fill orders without increasing the hours worked more than necessary.

Delivery times were little changed at 8.5 in November after 8.0 in October and suggested no appreciable bottlenecks in goods moving along the pipeline. The index for inventories fell to -4.6 after 6.6 and was the lowest since -7.6 in January. Manufacturers are moving quickly to adjust stocks on hand to avoid any unwanted accumulation.

The index for prices paid fell to 7.8 in November after slowing to 16.8 in October. It was the lowest since -1.8 in March 2016. Prices received declined to 12.2 after 16.4. If manufacturers are facing fewer upward pressures on input costs they are also seeing very little pricing power as year-end approaches and the coming year’s contracts are finalized.

The Philadelphia-ISM equivalent index fell almost 5 points to 54.4 in November after 59.3 in October. The Philadelphia equivalent — calculated from the five components most like those in the ISM Manufacturing Index — suggest that when the November ISM number is released at 10:00 ET on Monday, December 2, it will not climb over the 50-mark after three months below it. The Philadelphia equivalent has the strongest correlation among the five District Bank surveys of manufacturing.

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