Philly Fed Says Mid-Atlantic Factory Growth Slowed Dramatically

The Philadelphia Federal Reserve said that their regional survey of factory activity slowed significantly in December from growth seen in November. The mid-atlantic manufacturing report comes just days after the New York Fed’s Empire State Manufacturing Survey released Monday showed New York manufacturing business activity shrank for the first time in nearly two years.

The Manufacturing Business Outlook Survey showed general activity, new orders, shipments, and employment all were significantly lower than the prior month. The survey’s broadest measure of manufacturing conditions — the diffusion index of current activity — fell sharply by 16 points, down to 24.5 in December from a reading of 40.8 in November.

Wall Street expected a shallower decline to 27.

“The new orders and current shipments indexes also weakened significantly,” the Philadelphia Fed said in a statement. “The demand for manufactured goods, as measured by the current new orders index, decreased 20 points, from a reading of 35.7 last month to 15.7 this month. Shipments also fell, with its index falling 16 points to 16.1.”

Firms surveyed suggested a significant deterioration in the labor market compared with the month of November (see Chart 2), as the current employment index fell by 15 points and the percentage of firms reporting an increase in employees fell from 29 percent in November to 17 percent in December. On the bright side, the percentage of firms reporting a longer workweek was greater than the percentage reporting a shorter workweek (20 percent versus 14 percent). However, the workweek index as a whole decreased by nearly 2 points, to 6.2.

Firms also reported only a modest increase in prices, as the prices paid index dropped 3 points to 14.0 in December and the majority of firms said that input prices were unchanged.

“The December Manufacturing Business Outlook Survey suggests a slower pace of expansion of the region’s manufacturing sector but general optimism about the future,” the Philadelphia Fed said in their summary statement. “Firms were less optimistic about employment increases over the next six months, however, and concerns about rising health-care costs continue to be reported.”