Philly Fed Shows Improvement

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There are several points from the above data:

1.) There are now two months of solid increased (the lower gray lines). While this is not strong enough to call a trend, it does indicate that activity has increased over the last two months. This has probably led to an increase in the future expectations.

2.) Notice the big bump in new orders, shipping and overall activity. Those are welcome changes. However, also notice that employment and hours worked are still hovering at low levels. That means we haven't seen enough strong and continuous activity to see movement, indicating there is still a fair amount of caution about longer term prospects right now. That makes a great deal of sense considering we've only seen two months of solid improvements.

Because of their geographic proximity, here is a link to the latest NY Fed report. Remember it fell a bit this month, but has been in an uptrend for a few months before that indicating the NY area may be just a bit ahead of Philly.

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Two Manufacturing Reports Show Slow Growth

I missed the NY Fed's manufacturing survey on Monday. Here's the main point of the report:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers were flat again in April. The general business conditions index edged up 2 points, to 3.8, rebounding only marginally from March.

New orders were just above 0. Shipments dropped.

Here's some bad news for the Fed. Prices paid increased while prices received dropped slightly. The prices received index has dropped for three-straight months. This may indicate producers are having to cut prices to move product. In addition, inventories have increased three straight months, indicating future production may drop to prevent more of an inventory build-up.

The Philadelphia Fed reported similar conditions:

Activity in the region’s manufacturing sector was basically unchanged again this month, according to firms polled for the Business Outlook Survey. The index for general activity was near zero, and indicators for new orders, shipments, and employment were only slightly positive, suggesting little change from March. Regarding future activity, the region’s manufacturing executives were somewhat more optimistic this month than they were in March.

The Philly area also reported similar pricing problems as the New York Area -- increasing inputs and stagnant prices received:

Area manufacturers reported higher costs for inputs again this month. The prices paid index edged three points higher and has now increased for three consecutive months. Thirty-seven percent of the firms reported higher input prices, up seven points from March; 13 percent reported lower input prices in April.

Despite increased costs, fewer firms reported higher prices for their own goods this month: 17 percent reported higher prices, down nine points from March. The prices received index fell 11 points, to 5.2, its lowest reading since August 2005.

These two reports indicate the decline in Capex spending may be hitting home with manufacturers.

In addition, manufacturers are just hanging on in positive/expansion territory.

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Philly Fed Stalls

This chart from the report says it all.



Business conditions are hovering around zero. They have been here before and bounced, so this might not be a predictor of future problems.

But the usual 6-month enthusiasm has decreased a bit:

The outlook for manufacturing growth over the next six months showed a slight moderation this month. The future general activity index fell three points, and most of the other future indicators followed suit: The index for future new orders decreased four points, and future shipments decreased one point. Firms were also less optimistic about future growth in employment. The future employment index decreased eight points; 25 percent of the firms expect to increase employment over the next six months, and 16 percent expect to decrease it.

This is a weak report as well. Overall business conditions are hovering between expansion and contraction.

Here's a link to the full report -- Here's a PDF

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Phily Fed Up Moderately

From the Phily Fed:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a revised reading of -2.3 in December to 8.3 (see Chart).* This month, 25 percent of the firms reported increased activity; 17 percent reported decreased activity. The new orders and shipments indexes offer mixed signals about the strength of this month’s overall improvement. Demand for manufactured goods has not yet recovered much: The new orders index rose two points, from -0.9 to 1.3, after negative readings for two consecutive months. The shipments index increased 10 points from December; 37 percent of the firms reported an increase in shipments; 13 percent reported a decrease. Indexes for delivery times and unfilled orders remained negative, indicating shorter delivery times and a decline in unfilled orders.

Evidence of modest growth in manufacturing is suggested by replies concerning employment and hours worked. The percentage of firms reporting an increase in employment (21 percent) was somewhat higher than the percentage reporting decreases (13 percent). The current employment index was virtually unchanged from its revised December reading. The average workweek index edged four points higher, but the percentage of firms reporting longer hours (16 percent) was nearly the same as the percentage reporting shorter hours (15 percent).

Let's take a look at the general diffusion chart:



The gray line (current conditions) has trended down for the last 6 months or so. We saw a longer downtrend from mid-'04 to mid-'05 without a serious problem. That means the most recent decrease could be nothing more than a natural slowdown from peak activity. In addition, we have seen modest increases over the last year, so the recent increase into positive territory could be the beginning of a return to slower but positive production levels. However, we are near the 0 line, so this trend bears watching.

The new orders index rose two points, from -0.9 to 1.3, after negative readings for two consecutive months.

The new orders index isn't offering us much hope right now.

Here's some good news in the report:



The prices paid component has dropped for the last 6 months. This is good news on the inflation front.

The current employment index was virtually unchanged from its revised December reading.

We've seen manufacturing employment take a big hit during this expansion. Here's a chart of national manufacturing since 2000.



The large productivity gains have translated into fewer manufacturing employees. There is no reason to think this trend won't continue.

The short version is all the recent manufacturing numbers have showed a slightly positive reading not strong enough to warrant extreme optimism, but enough to warrant a soft-landing.

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Philly Fed Is Mixed

From the Philadelphia Federal Reserve:

Overall economic conditions in the region’s manufacturing sector declined slightly in December, according to firms polled for this month’s Business Outlook Survey. Indicators for general activity, new orders, and unfilled orders were negative in December. Indicators for shipments and employment, however, were positive and stronger than last month. Although firms again reported higher prices for their own manufactured goods, the survey’s prices paid indicator continues to suggest diminishing cost pressures. The region’s manufacturing executives were less optimistic about future activity; most future indicators decreased for the second month in a row.

Here's a link to a table with the results. It doesn't translate well to the Blogger format.

Here are some interesting points from the table listed above:

1.) 6 months from now, 35% of respondents think new orders will be increasing. Currently only 26% think new orders will increase. 25% see an increase in inventories in 6 months, whereas right now only 16% see an increase in inventories. 37% see an increase in employment in 6 months, whereas only 27% see an increase in employment right now. It looks like people are thinking any slowdown is temporary.

2.) Here's a big piece of information. 53% see an increase in prices paid in six months whereas only 33% see an increase this month. This is something the Fed will probably be interested in.

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