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First Cut: Philadelphia Fed manufacturing general business conditions only narrowly expansionary in December

The Philadelphia Fed’s manufacturing general business conditions index slipped to 0.3 in December from 10.4 in November and was the lowest since 0.3 in June. The Philadelphia Business Outlook has remained more to the upside than many other regional surveys for manufacturing. However, it is also starting to feel the pinch that has dragged down activity elsewhere. The index for conditions six months from now was essentially unchanged at 35.2 in December from 35.8 in November. Things are expected to return to a moderate pace of expansion in the near future.

The index is a measure of perceptions from survey respondents, not calculated from components. As such, the details can tell a different story about manufacturing in the District. In December these were somewhat mixed, but on the whole more positive in tone.

The index for new orders was up a point in December to 9.4 after 8.4 in November. Order backlogs improved to 10.4 from 6.0. This suggested that activity has some ability to maintain expansion for the next months. Shipments increased to 15.9 from 9.8 as orders were completed and moved out quickly.

Delivery times widened to 10.6 in December after 8.5 in November. This hinted that some goods were moving more slowly along the supply chain, perhaps because of lean inventories. The inventory index increased to 6.1 in December after -4.6 in November as businesses continue cautious bursts of restocking as needed.

The index for employment declined to 17.8 in December from 21.5 in November. The pace of hiring lost momentum over the past two months but has not fallen off completely. Manufacturers are still hungry for skilled workers. Hours worked expanded more quickly with the average workweek index at 7.7 after 5.2.

The index for prices paid climbed to 19.0 in December after 7.8 in November. Price increases for inputs are tepid, at most, but the fluctuations in energy prices added to the gain in December. The prices received index was essentially unchanged at 11.9 after 12.2 with pricing power at a low ebb for the moment.

The Philadelphia-ISM equivalent index – computed from the five components most like the ISM Manufacturing Index – rose to 56.0 in December from 54.4 in November. Even with the equivalent index’s solid historical correlation with the ISM number – it is the best among the five District Bank surveys – it hasn’t been tracking well in recent months. The cautious assessment would be that the ISM Manufacturing Index isn’t going to break out of the recessionary readings of the past four reports, but it could be closer to doing so.

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