Philly Fed Index Unexpectedly Indicates Return To Growth In August

After reporting contractions in Philadelphia-area manufacturing activity in the two previous months, the Federal Reserve Bank of Philadelphia released a report on Thursday showing regional manufacturing activity unexpectedly returned to growth in the month of August.

The Philly Fed said its diffusion index for current activity jumped to a positive 6.2 in August from a negative 12.3 in July, with a positive reading indicating growth. Economists had expected the index to rebound to a negative 5.0.

The rebound by the headline index was partly due to a notable acceleration in the pace of shipment growth, as the shipments index jumped to 24.8 in August from 14.8 in July.

The new orders index also showed a significant rebound but remained negative, surging to a negative 5.1 in August from a negative 24.8 in July.

The report also showed a faster rate of job growth, with the number of employees index rising to 24.2 in August from 19.4 in July.

Meanwhile, the Philly Fed said the indexes for prices paid and prices received continue to indicate widespread price increases but declined for the fourth consecutive month.

The prices paid index slumped to 43.6 in August from 52.2 in July, while the prices received index slid to 23.3 from 30.3.

Looking ahead, the Philly Fed said the survey’s future indexes rose slightly but continue to suggest that firms expect overall declines six months from now.

The diffusion index for future general activity climbed to a negative 10.6 in August from a negative 18.6 in July but remained negative for the third consecutive month.

“We expect manufacturing growth to downshift in response to the ongoing demand rotation towards services and away from goods,” said Mahir Rasheed, U.S. Economist at Oxford Economics.

He added, “However, the latest data from the Philly Fed district implies that there remains a solid demand pipeline and a manufacturing slowdown should not cascade into an outright contraction in output.”

On Monday, the New York Fed released a separate report unexpectedly showing a substantial contraction in New York manufacturing activity in the month of August.

The New York Fed said its general business conditions index plummeted to a negative 31.3 in August from a positive 11.1 in July, with a negative reading indicating a contraction in regional manufacturing activity.

Economists had expected the index to show a much more modest decrease to a positive 8.5.

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