Manufacturing activity continued to weaken in the Philadelphia area, the fifth straight month of contraction, a report from the Federal Reserve Bank of Philadelphia said on Thursday.
The Philly Fed said that the index for current general activity of its Business Outlook Survey rose to minus 8.9 in January. While that is an improvement from the minus reading 13.7 in December, any reading below zero indicates a contraction in activity from the previous month.
Economists had forecast the index to come in at minus 10.0.
The index of new orders, a critical metric of demand for manufactured goods in the region, registered its eighth consecutive month in contraction territory. It did improve, however, compared to the prior month, rising to a minus 10.9 from the deeply depressed minus 22.3, the lowest reading since the economy was reeling from the financial crisis in April of 2009.
The Philly Fed’s report follows the Empire State survey released by the New York Fed this week. The index of general conditions for New York plunged, with substantial declines in new orders and shipments. The Washington, D.C.-based Federal Reserve Board said this week that industrial output fell sharply in November and December, with steep declines in both months for manufacturing. Production of business equipment, a key leading indicator of business activity, fell in both as well.
From the perspective of the Fed, the report is mixed. The Fed is aiming for its interest rate hikes to bring economic growth below its long-term trend. The central bankers argue that a slowdown, if not an outright recession, is necessary to cool off the labor market and tame inflation.
On the one hand, the contraction in manufacturing output, alongside the housing market slump, are likely to drag down economic growth. On the other, the labor market remains very tight. The employment index in the Philly Fed survey improved from minus 0.9 in December to positive 10.9 in January.
The index tracking increases in prices of manufactured goods remained elevated, although the index tracking the costs of materials and components fell to a historically normal level.
The survey’s forward-looking indexes signaled moderate expectations for growth over the next six months. The future general activity index rose to 4.9 in January from minus 0.9 a month earlier. That optimism, however, runs contrary to Fed plans to slow growth and would appear to be another place—along with the bond market and the labor market—where the private sector is pushing back against the Fed. On the other hand, expectations for payroll size fell into negative territory, which is consistent with the Fed’s monetary policy.
The Philly Fed manufacturing index is based on surveys of manufacturing firms in the Third Federal Reserve District, which covers eastern Pennsylvania, southern New Jersey, and Delaware.
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